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What is Financial Ratios

Handbook of Research on Engineering, Business, and Healthcare Applications of Data Science and Analytics
Relative number indicating the ratio of two financial values from the financial statements to determine the financial health of a company.
Published in Chapter:
Evaluating Business Performance Using Data Envelopment Analysis and Grey Relational Analysis
Tihana Škrinjarić (University of Zagreb, Croatia) and Boško Šego (University of Zagreb, Croatia)
DOI: 10.4018/978-1-7998-3053-5.ch007
Financial ratios are used in a variety of ways today. Empirical research is getting bigger, with a special focus on predicting business failure, the strength of a company, investment decision making, etc. This chapter focuses on two methodologies suitable to deal with many data to evaluate business performance. They are data envelopment analysis and grey relational analysis. The empirical part of the chapter conducts an empirical analysis with the aforementioned two approaches. Firms are ranked based on their performances and detailed interpretations are obtained so that managers within businesses can get useful information on how to utilize such an approach to modelling. This study implicates that using the two mentioned approaches can be useful when making investment decisions based on many data available for the decision maker. This is due to the methodology being suitable to handle big data and correctly quantifying the overall financial performance of a company.
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More Results
Genetic Algorithms for Small Enterprises Default Prediction: Empirical Evidence from Italy
Mathematical relationship, usually quoted as percentages, between two values taken from an enterprise's financial statements or balance sheet and used to evaluate the health of a firm (in term of profitability, liquidity, solvency).
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Predicting Company Bankruptcy Using Machine Learning Techniques: A Step-by-Step Guide
Metrics that are used to assess a company's financial health and performance, such as liquidity ratios, profitability ratios, and debt ratios.
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A New Framework for Industrial Benchmarking
Ratios used in finance; they are computed as the ratio of two financial metrics.
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Bankruptcy Prediction through Artificial Intelligence
Mathematical relationship between one financial quantity and another used to describe financial condition of a firm. There are many categories of ratios such as those that evaluate a business entity’s liquidity, solvency, return on investment, operating performance, asset utilization, and market measures.
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Modelling a Small Firm in Jordan Using System Dynamics
Financial ratios are a valuable and easy way to interpret the numbers found in statements. It can help to answer critical questions such as whether the business is carrying excess debt or inventory, whether customers are paying according to terms, whether the operating expenses are too high and whether the company assets are being used properly to generate income. When computing financial relationships, a good indication of the company’s financial strengths and weaknesses becomes clear. Examining these ratios over time provides some insight as to how effectively the business is being operated.
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Organizational Intelligence Scale for Business Organizations in Chaotic Situations
In order to determine the financial success of the firms under study, the first phase of the process will feature determination of the level of financial ratios. Five ratios among those generally accepted in the initial stage will be selected. However, there may be a possibility of increasing the number of rates for specific sectors or companies. Then, a specified weight percentage depending on the importance of each of the selected ratios will be accorded to each ratio. The sum of the weight percentage given to a ratio is equal to 100. In this study, it will be assumed that all ratios are of equal weight and accordingly, a weight of 20% will be given.
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