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Financial Ratios;
Financial ratios are significant indicators of the financial performance and situation of a
firm. Financial ratios are categorized according to the information they offer. Most financial
ratios can be determined from information available in financial statements. They are used to
analyze the development of a firm and compare an organization’s financials to those of
competing organizations (Schonfeld 56). Also, financial ratios can be used to foretell chances of
future bankruptcy.
There are various financial ratios. Some of the regularly used financial ratios are;
liquidity ratios, profitability ratios, asset turnover, and dividend policy ratios (Bull 84). Liquidity
ratios give information regarding a company's ability to achieve its short-term financial
responsibilities. These ratios are of specific interest to those going beyond short-term credit to
the organization. Asset turnover ratios tell how effectively an organization puts its assets to use.
Financial leverage ratio indicates the long-term solvency of an organization. Contrasting
liquidity ratios which deal with short-term liabilities and assets, financial leverage ratios
determine the degree to which an organization is appropriately using its long-term debt.
Dividend policy ratio predicts the dividend policy of an organization and its possibility of future
expansion. The two most used ratios are payout and dividend yield ratio. Lastly, profitability
