Financial ratio analysis

Simply put

A figure on its own says little: a net profit of 100,000 SAR is good for a small store and weak for a large factory. A ratio links the figure to another one, so you can judge it.

Ratios are grouped into four sets: profitability (margins and returns), liquidity (current, quick and cash), debt (debt ratios and interest coverage), and efficiency (turnover and the collection, payment and inventory periods).

A ratio has no value without comparison: with your previous years, with your budget, or with businesses in your activity.

Example

A pharmacy owner saw that his profit was steady, but ratio analysis showed that the collection period from insurance companies had grown longer and the cash ratio had fallen, so he knew his problem was in collection, not in profit.

Don't confuse it with