How do I interpret financial ratios?

What are financial ratios and why are they important?

Financial ratios are metrics used to evaluate a company's performance and financial health. They help investors and analysts make informed decisions.

Can you explain some common financial ratios?

Sure! Common financial ratios include the current ratio, debt-to-equity ratio, and return on equity. Each serves a different purpose in assessing a company's performance.

How do I calculate the current ratio?

The current ratio is calculated by dividing a company's current assets by its current liabilities. It measures liquidity.

What does a high or low current ratio indicate?

A high current ratio indicates good liquidity, meaning the company can cover its short-term obligations. A low ratio may suggest potential liquidity issues.

Are there any limitations to using financial ratios?

Yes, financial ratios should be used in context. They can vary by industry and may not provide a complete picture of a company's health.