What is Liquidity Ratio?The ratio which measures the capability of a firm to meet its current obligation is known as liquidity ratio. This ratio derived its name from ‘liquidity’ referring to ‘the cash deposits available’.As a result, liquidity ratios are helpful in determining the firm’s ability to meet its short- and long-term liquidity needs. Liquidity ratios form a relationship between cash and other forms of assets to show the firm’s ability to meet its current obligations (current liabilities).Uses of Liquidity RatioLiquidity ratios are used to measure the liquidity position of a company. Usually, high equity is considered to be good ... Read More

What is Leverage Ratio?Creditors and lenders invest money in a firm looking for returns at different points in time. Short-term creditors, such as bankers and raw materials suppliers are usually more interested in the short-term liquidity of the firms they invest in. On the other hand, the long-time creditors, such as debenture holders and institutional investors look for the long-term health of a firm.In order to be termed healthy, therefore, a firm should be able to meet its short- as well as long-term obligations. To ascertain the long-term potential of a firm, financial leverage or capital restructure ratios are used. ... Read More

Pro-Forma Ratio AnalysisPro-forma is a Latin word meaning ‘for the sake of form’. A Pro-forma analysis is a way to project the financials of a firm in a future period. In order to create Pro-forma analysis historical data is used as the base of accounting. Therefore, Pro-forma ratio analysis can be termed as a way of accounting that uses data from the past to forecast the results in the future.Sometimes, Pro-forma analysis is also used to omit the irregularities of accounting. For example, instead of projecting the future position, a Pro-forma report may show the performance of the company if ... Read More

Although people consider cross-sectional and time-series analysis to be the same; however, they are totally different in many aspects.Based on Use and Nature of DataThe main difference between cross-sectional and time series analysis is in their use of data. Moreover, the data collected for time series and cross-sectional analysis are different in nature too.The difference between cross-sectional data and time-series data is that time-series data considers the same variables over a certain period of time, whereas cross-sectional data uses different data for a given point in time. It means that time-series data are stable, whereas the data used in the ... Read More

What is Cross-Sectional Analysis?Cross-Sectional analysis is one of the handiest tools in comparing the performance of companies. Usually, companies within a given industry are tested with a chosen metric in cross-sectional analysis. It is not only correct, but it is also quite accurate in measuring the true financial potential of a company.Cross-sectional analysis is an analysis of specific data of a population or study of the pre-set subjects at a certain period of time. In finance, cross-sectional analysis is used to compare the performance of companies. The cross-sectional analysis offers insight into the performance of a company on a given ... Read More

What is Time Series Analysis?In order to evaluate the performance of a company, its past can be compared with the present data. When comparisons of past and present data are done, the process is known as Time Series Analysis. Time series are stretched over a period of time rather than being confined to a shorter time period. Time series analysis draws its important because it can help predict the future. Depending on the past and future trends, time series are able to predict the future.Time series analysis is helpful in financial planning as it offers insight into the future data ... Read More

What is Industry Ratio Analysis?In order to check the financial condition of a firm, the financial health of the firm may be compared with the other players in the industry. It gives an insight into the company’s performance vis-a-vis its competitors. The performance of a company may look very impressive when checked alone, but the overall quality of performance may be weak when its peers are considered. Therefore, financial ratios can be used to compare the overall performance in order to rank the company’s growth, profitability, and progress.Types of Industry Ratio AnalysisHere are the most commonly used financial ratios types ... Read More

A number of ratios are used in financial analysis to measure the profitability and the overall financial health of the company in the short as well as in the long terms. These ratios are mainly used by the investors, owners of the company, and management. The short-term creditors are interested in the short-term liquidity of the firm whereas the long-term debtors seek long-term sustainability and profitability.The owners of a firm are more concerned mainly in the profitability and growth of the firm. The management, on the other hand, is interested in all other financial aspects of the company. So, depending ... Read More

What is a Ratio?A ratio, in simple terms, expresses a relationship between two or more things. Ratio is an indicated quotient of two mathematical terms that shows a relationship and expresses a fact.In the case of financial analysis, a ratio is used as a benchmark to estimate the financial position or to look at the financial position of the firm. It is to be noted that to form a ratio, at least two mathematical expressions are required. A single value, by its nature of individuality, cannot express a ration on its own.What is a Financial Ratio?The absolute accounting figures mentioned ... Read More

What is Meant by Financial Analysis?Financial analysis is a method of finding the strengths and competencies of a firm by establishing relationships between the items on the balance sheet and the profit and loss account. It is very essential for firms to succeed by focusing on needful financial points and revitalizing their financial strength. Financial analysis can be done by any stakeholder of the company and they differ in terms of content which is used by the stakeholder according to his/her own needs.Who Uses Financial Analysis?Financial analysis can be used by different groups of people for a variety of reasons. ... Read More