2Financial Ratios and Financial AnalysisFinancial ratios are defined as logical information that is connected from acompany’s financial information, this is typically used for comparison purposes internally andexternally to gage the risk of the investment for potential investors and it’s also a good tool forfinancial managers to make future forecasts and oversee the overall health of the business. Thereare many different factors that make financial ratio analysis important but mainly it is used toaccess a company’s liquidity, growth, profits, margins, rates of return and overall valuation.They use the numbers found on a company’s balance sheet, income statements, and cash flowstatements to perform the quantitative analysis of the five different types of ratios.The fivetypes of financial ratios are liquidity ratios which evaluate short term solvency, capital structureratios which evaluate long term solvency, turnover ratios which check the use of availableresources, profitability ratios that evaluate the ability to generate profits, and coverage ratioswhich evaluate the ability to pay interest, dividends and principals. A financial ratio typically isdone for two different reasons, to track the company’s performance and to help them makecomparative analysis regarding their performance. “Determining individual financial ratios per
