From the course: Managerial Finance Foundations
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Common financial ratios
From the course: Managerial Finance Foundations
Common financial ratios
- It turns out, you can get a lot of additional information from the financial statements just by doing a simple thing, divide one financial statement number by another. The results of these calculations are called financial ratios. Now, of course, there are hundreds of possible ratios, but here we will discuss just two key financial ratios. We will learn about the debt ratio and the current ratio. The debt ratio is computed as total liabilities divided by total assets. Debt ratio is a measure of a company's leverage. Leverage is a common way to describe the degree to which a company has borrowed the money needed to buy its assets, compared to getting that money from investment from owners, For Walmart, for example, as of January 31st, 2021, the $165 billion of total liabilities relative to the 252 billion in total assets. That means the company borrowed about 65% of all the money it needed to buy its assets. Now, where did…
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