Analyzing Financial Ratios - Solvency, Liquidity and Debt 1.5 CPE

Financial ratios are financial metrics that determine relationships between aspects of a company’s operations and financial position. Although financial statement ratios have long been used to assist finance and accountanting professionals with evaluating the health and profitability of organizations, many people focus on the “calculation” rather than “what the ratio may be communicating". It is important to fully understand the purpose of the ratios and what they can tell you about your organization. 

Most balance sheet ratios are basic and easy to calculate. They include only balance sheet items such as assets, liabilities and shareholder’s equity in their calculation.

The various financial statement ratio types include:

• Liquidity and Solvency Ratios
• Financial Leverage and Debt Ratios
• Asset Efficiency or Turnover Ratios
• Profitability ratios
• Market value ratios

This course will focus on Liquidity, Solvency and Debt ratios.

Prerequisites

No advanced preparation or prerequisites are required for this course.

Learning Objective

• Explore basic financial ratio analyses and math concepts.
• Explore the concept of solvency ratios including:
  • Equity Ratio 
  • Debt Ratio
  • Debt/Equity Ratio
  • Total Debt/Total Assets
  • Times Interest Earned
  • Fixed Assets/Net Worth
• Explore the concept of liquidity ratios including:
  • Current ratio (Working Capital (WC) ratio)
  • Quick ratio (acid test ratio)
  • Cash ratio
  • Working capital
  • Debt/Inventory
• Explore math theories to analyze ratio changes.
• Explore a comprehensive example of ratio calculation.

Last updated/reviewed: March 8, 2024