Financial Ratios Definitions

Definition:

Average inventory period is used to measure the average numbers of days over the given time period, goods are held in inventory before sold.

So from this investors and analysts analyze that how long the company takes to sell its current inventory.

Average Inventory Period is important in this ratio because it shows how inventory turnover change over time.

For management, this is the important ratio because from this ratio management knows that which inventory take more time to sold and which take less time.

If the average inventory period ratio is high it means that inventory takes more time to sell.

If the ratio is low then inventory takes less time to sold which is good for the company.

Financial Ratio is a forum where you will learn about all ratios definitions and formulas.

Definition:

Financial ratios are used to analyze the financial standing of the business. Also for the comparison of different companies in different industries financial ratios use.

A mathematical comparison of the financial statement, accounts or category is called financial ratio. Through this ratio investors and management knows about the performance of the business. Through this ratio management also knows about the area of the business which needs improvement.

For the comparison of the financial information small and big companies use the financial ratio. This ratio not considered the size of the companies and industries.

Companies use this ratio to find the strength or weakness of the companies.

Financial ratio divided into 7 categories which are liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage.

You can Check here Financial Ratios Formulas.

Financial Ratio is a forum where you will learn about all ratios definitions and formulas.

Definition:

Asset turnover ratio used to measure the ability of the company to generate the sales from assets of the company. It can be calculated by comparing net sales with average total assets.

Investors use this ratio to find how efficiently a company uses its assets to generate sales.

 

Total Asset Turnover ratio calculates the net sale of the company as a percentage of assets in order to show that, from each dollar of the company how much sales generate.

For example, if the result of the ratio is .7 its means that from each dollar company generate 70 cents of sales.

Financial Ratio is a forum where you will learn about all ratios definitions and formulas.

Definition:

Asset Coverage Ratio is used to measure the efficiency of the company that how efficiently a company can repay its debt obligation by selling its assets.

So from this ratio investors analyze that how much assets a company requires to pay the debt obligation.

For the equity investors and debt investors, assets coverage ratio is important because from this ratio both estimate the worth of the assets of the company as compared to the debt obligation of the company.

For the measurement of capital management, financial stability, and overall riskiness of the company analyst also use the Asset coverage ratio.

If the ratio of the company is high then for investors such type of company is better.

Financial Ratio is a forum where you will learn about all ratios definitions and formulas.

Definition:

Accumulated Depreciation to Fixed Assets Ratio is the financial measurement. It is used to calculate the age, value and remaining life of the fixed assets of the company on the company’s balance sheet by comparing the total depreciation amount on these assets with total carrying cost.

For the representation of the lost values on the fixed assets which are ages and become fewer price assets, accumulated depreciation is used.

For the measurement of the remaining usefulness of the assets, the company compares the total amount of a company used its assets by the total value of the assets.

Machinery and other equipment which company use for making the product or for other services are the fixed assets of the company.

If the ratio is high then the fixed assets remaining life is less and need to remove the fixed assets of the company. If the ratio is low then fixed assets may be used for many years.

Financial Ratio is a forum where you will learn about all ratios definitions and formulas.