Financial ratio

Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.

Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition are usually hard to compare.

There is no international standard for calculating the summary data presented in all financial statements, and the terminology is not always consistent between companies, industries, countries and time periods.

A meaningful basis for comparison is needed to answer questions such as "Is it too high or too low?"

[7] Cross-sectional analysis compares the financial ratios of different companies at the same point in time.

Companies that are primarily involved in providing services with labour do not generally report "Sales" based on hours.

These companies tend to report "revenue" based on the monetary value of income that the services provide.

Profitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return.

Debt ratios measure the level of borrowed funds used by the firm to finance its activities.