The most frequently used financial indicators


The following list contains financial indicators that are commonly employed in financial analysis. These indicators are classified into five groupsthat

reflect various aspects of the financial situation of the company:Ratios of liquidity Capital structure ratios (sustainability ratios)Ratios of

profitability Ratios of business activitiesInvestment requirementsFor certain ratios, there are recommended values for certain ratios that are

frequently discussed from Russian experts. However , it is important to keep in mind that the permissible values for indicators can be significantly

different not just for different industries , but as well for various enterprises in the same sector, and the whole picture of the business’s financial

position is only obtainable through analyzing the entirety of financial indicators, with consideration to the specifics of the company’s activities. The

numbers of the indicators are solely informative and should not be utilized as a reference point for actions. The only thing to be observed is that, if the

values of the indicators are different from the ones recommended It is important to discover the reason of these deviations. Liquidity RatiosLiquidity

ratios define the capacity of the business to satisfy the demands of short-term debt holders.

Absolute Liquidity RatioIt reveals how much of short-term debt is covered with cash or cash equivalents that are bank deposits and securities that are

marketable, i.e. virtually all liquid assets.Calculated using the formula:The recommended values are: 0.2 – 0.5 The acid Test Ratio (Quick ratio)A ratio

that represents the liquid portion of the current assets (cash receivables, receivables, and investment funds for short term) to the current liabilities. It

is generally recommended that this ratio be higher than 1. But the actual values for Russian businesses are usually less than 0.7-0.8 that is

acceptable.It is calculated using the formula:The recommended values are: 0.3 – 1 Current RatioThe Current Ratio can be calculated as a percentage of

short-term assets and current liability and indicates whether the business has sufficient cash available to cover the payment of short-term obligations.

Based on the international (and Russian) practice, the ratio of liquidity should be between 1 to 2 (sometimes even three). This lower threshold is

because the assets in current use must be adequate to cover short-term liabilities otherwise, the business is in danger of going bankrupt. A surplus of

current assets above short-term liabilities greater than 3 times is unsuitable as it could indicate an insanity-based asset arrangement.It is determined

using the formula:Recommended values 1 2 Net working capital expressed in currency unitsThe difference between current assets and short-term

obligations. Working capital net is required to ensure the financial stability of the business as the surplus in current assets over the short-term

obligations implies that the business is not just able to pay off its short-term debts however, it also has the funds to increase its operations.

Next Post