19.2 TYPES OF FINANCIAL RATIOS

Ratios reveal many financial dimensions of a firm. So different types of ratios are computed depending upon the purposes for which they are computed. Broadly speaking, financial ratios that are normally computed on the figures presented in the income statement and the balance sheet can be grouped under three heads:

  1. Liquidity ratios that examine whether the funds with the firm are adequate to avoid insolvency;
  2. Profitability ratios that measure the efficiency of operations;
  3. Ownership ratios that help evaluate the activities and policies of the firm that influence the market price of its equity shares.

19.2.1 Liquidity ...

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