Ratios in Accounting
Ratios in Accounting are critical financial metrics employed to measure a company's performance, effectiveness, and health. They assist stakeholders in comparing various aspects of a business, including profitability, liquidity, and solvency. Examples of common ratios include the current ratio (current assets ÷ current liabilities), used to measure liquidity, and the debt-to-equity ratio (total debt ÷ total equity), used to measure financial leverage. Profitability ratios, such as the net profit margin (net income ÷ revenue), indicate the effectiveness of a firm in generating profit. The ratios are useful in decision-making, industry benchmarking, and monitoring trends over time, and benefit investors, managers, and creditors.
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