Financial Ratio

A mathematical comparison of two or more financial statement items to assess a company's financial health. 

A financial ratio is a mathematical comparison of two or more items from a company's financial statements that express a specific relationship. These ratios are used to assess a company's financial performance, liquidity, solvency, profitability, and efficiency.

Here are the different types of financial ratios and what they measure:

Liquidity ratios:

Current ratio: Measures a company's ability to pay its short-term liabilities with its short-term assets
Quick ratio: Measures a company's ability to pay its short-term liabilities with its most liquid assets (cash, marketable securities, and accounts receivable).
Cash ratio: Measures the portion of a company's current liabilities that can be covered by its cash and cash equivalents.
Solvency ratios:

Debt-to-equity ratio: Measures a company's ability to meet its long-term financial obligations by comparing its total debt to its total equity.

Debt-to-capital ratio: Measures the proportion of a company's capital that is financed by debt.
Profitability ratios:

Profit margin: Measures a company's profitability as a percentage of its revenue
Return on equity (ROE): Measures how much profit a company generates for each dollar of shareholder equity.
Return on assets (ROA): Measures how much profit a company generates for each dollar of total assets.
Inventory turnover ratio: Measures how many times a company sells and replaces its inventory over a period of time.

Receivables turnover ratio: Measures how many times a company collects its receivables over a period of time.
Payables turnover ratio: Measures how many times a company pays its suppliers over a period of time.