Financial Ratios of Dhaka Stock Exchange

05/03/2013 14:36

Financial ratios are a valuable and easy way to interpret the numbers found in statements. It can help to answer critical questions such as whether the business is carrying excess debt or inventory, whether customers are paying according to terms, whether the operating expenses are too high and whether the company assets are being used properly to generate income.

When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides some insight as to how effectively the business is being operated.

Many industries compile average industry ratios each year. Average industry ratios offer the small business owner a means of comparing his or her company with others within the same industry. In this manner, they provide yet another measurement of an individual company's strengths or weaknesses. Robert Morris & Associates is a good source of comparative financial ratios. Following are the most critical ratios for most businesses, though there are others that may be computed.

Ratios are a means of highlighting relationships between financial statement items. Generally, ratios are used in two ways: for internal analysis of items in a balance sheet; and/or for comparative analysis of a company’s ratios at different time periods and in comparison to other firms in the same industry.

D&B uses fourteen key financial business ratios to measure a company’s solvency, efficiency and profitability. The ratios are divided into three groups:

Solvency Ratios – measure the financial soundness of a business and how well the company can satisfy its short- and long-term obligations

Efficiency Ratios – measure the quality of the firm’s receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the firm is overtrading or undertrading on its equity (using borrowed funds).

    Profitability Ratios – measure how well a company performs; analyze how profit was earned    relative to sales, total assets and net worth.