Key figures, also known as financial ratios, are an efficient measurement tool to support companies in their financial analysis. They allow to summarise balance sheet and income statement figures into comprehensible and categorised calculations. Among other things, the financial health of the company can be derived from this.
Ratio analysis is a quantitative procedure that provides an overview of a company's liquidity, operational efficiency, as well as profitability in various areas. Ratio analysis thus implies the calculation of various figures and numbers taken from the balance sheet and the income statement. On the one hand, ratios, e.g., translating numbers into key insights, might allow to identify the company’s weaknesses or other constraints resulting from an excessive financial indebtedness for example. Appropriate measures can then be derived in order to tackle the issue. On the other hand, ratios are widely used as a measurement tool to make comparisons between different sectors or time periods.
Liquidity ratios
Liquidity ratios illustrate and measure the ability of a company to pay its short-term debts before a default occurs. This is done by including current assets or, more importantly, cash and cash equivalents in the calculations used to evaluate these various ratios.
Profitability ratios
Profitability ratios provide information on how well a company can generate income from its business activities. Further, they generally show how these stand in relation to the assets or the capital employed/invested.
Leverage ratio
Leverage ratios are mainly concerned with the company's ability to meet its financial obligation. In other words, they assess the extent to which a company can pay its debts. They are generally calculated relative to the company’s assets, equity, and profit. Their main aim is to assess the probability of the company's long-term survival.
