Financial ratio analysis financial analysis

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Financial ratios explained! How does financial ratio analysis work? Let’s discuss ten of the most popular financial ratios that can help you find the story behind the numbers.

What do you need to get started on a financial ratio analysis? You need an income statement, the overview of how much profit a company made during a year. You also need a balance sheet, an overview of what a company owns and what a company owes at a specific point in time. We will start off with financial ratios that only focus on the income statement, then look at #financialratios that only focus on the balance sheet, and end with powerful financial ratios that combine information from the income statement and the balance sheet. Performing a financial ratio analysis has a scientific element to it (finding data and putting it into formulas), as well as an artistic element (assigning meaning to the outcome of the calculations, and seeing the big picture).

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⏱️TIMESTAMPS⏱️
00:00 Introduction to financial ratio analysis
00:12 Income statement and balance sheet
00:45 Financial ratio analysis: an art and a science
01:02 Financial ratios on the income statement
01:39 Gross Profit % – Operating Margin % – Return On Sales %
02:29 Analyzing income statement financial ratios
03:35 Financial ratios on the balance sheet
04:01 Current ratio
04:40 Working capital
05:16 Debt-to-equity ratio
06:30 Financial ratios combining income statement and balance sheet
06:46 Return On Equity
07:26 Asset turnover ratio
08:00 Receivables turnover ratio
08:18 Days Sales Outstanding
08:38 Inventory turnover ratio
08:58 Financial ratio analysis summary

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In this video on financial ratio analysis, we cover ten financial ratios:
On the income statement: gross profit %, operating margin %, return on sales %
On the balance sheet: current ratio, debt-to-equity, equity as % of total
When linking the P&L and the balance sheet: return on equity, asset turnover, receivables turnover, inventory turnover

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In! .

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25 comments

The Finance Storyteller 25/09/2021 - 10:38 PM

Lots of exciting and helpful new videos coming up! Be sure to click the like button, subscribe and turn on notifications to ensure you don't miss anything. Dive deeper into financial ratios by watching my videos on the Current Ratio https://www.youtube.com/watch?v=dkiSWO2OYho and DuPont ROE analysis https://www.youtube.com/watch?v=bhbDDSohJ84 Or zoom out to the bigger picture of financial analysis: https://www.youtube.com/watch?v=jG-oXx54qxE&list=PLKbmcnUUQMlkfVUEfWOd_ffOMgNPZu7KZ

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Saq Saq 25/09/2021 - 10:38 PM

I think the inventory formula is wrong. It should be COGS/ av. inventory

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Pandoy Penduko 25/09/2021 - 10:38 PM

Sir may I ask, why do you say that company A has lower leverage compared to company B? leverage in terms of what? The ratios clearly shows that the company A, relies on its equity than than company B who relies on borrowings. Can you please shed some enlightenment? Thanks

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Gaby Urey 25/09/2021 - 10:38 PM

Excellent explication

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GlorySeeker 25/09/2021 - 10:38 PM

I finally able to learn about financial ratio. I always invested without understanding this basic. Thanks for your explanation. It's easy and now i know how to write my own story.

By the way, i would to like about net margin and operating. If the margin are all in 2 digits instead 1 digit, what does it mean?

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safa bdr 25/09/2021 - 10:38 PM

Thank you very much sir

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Meriem Lay 25/09/2021 - 10:38 PM

The way you explain reminded me a lot of one of my professors! Thanks a lot sir, this was very useful !

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Fred A 25/09/2021 - 10:38 PM

This video offers a lot of good information on how to calculate things, but I still don't know which company is doing the best, so I don't know which figures I should be focusing on to ensure I'm not in serious risk.

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CATHERINE SHEILAH NABUKEERA 25/09/2021 - 10:38 PM

Absolutely Ah-mazing! As somebody from a non-financial background, I think I've finally gotten these ratios into my head..permanently! Thanks for making this super helpful video

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sanskriti tripathy 25/09/2021 - 10:38 PM

I just watched a 4 hour video and learnt what this 10 minute video taught me

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sanskriti tripathy 25/09/2021 - 10:38 PM

This was awesome

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Jia Lin CAI 25/09/2021 - 10:38 PM

Hi, I want to say thank you for the videos!I'm an English major and I have taken some electives in Economics. I have an interview coming soon. Your videos help me refresh what I have been reading on my own. Wish there can be some excel practices or case analysis!

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Shahrukh Khan 25/09/2021 - 10:38 PM

Amazing channel…. I love it and the way you have taught.. keep it up 🙂

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Soundharya Kannan 25/09/2021 - 10:38 PM

Thank you so much for this video but doesnt working capital mean current assets – current liabilities ? why was cash excluded at 4.59 then? Thanks!

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Ngoc Tran 25/09/2021 - 10:38 PM

I think there are some definitions are not right. For example, inventory turnover must be Cost of Good Sold divided average inventory amount. If we use revenue, the ratio will be overstated.

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alonso soto 25/09/2021 - 10:38 PM

Great , a very good analysis.
Thanks you.

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Panda On Steroids 25/09/2021 - 10:38 PM

I like you.

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Javeria J 25/09/2021 - 10:38 PM

I have an interview tomorrow and I am roughly brushing through finance concepts and I must say that your videos have saved me a lot of time! You have explained everything with a lot of crispness and clarity, no shenanigans. Exactly what's needed for finance studies. Keep it up! Great work!

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wiz ness 25/09/2021 - 10:38 PM

Hi, does receivable turnover and debtors turnover are the same thing?

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Vinh Nguyễn 25/09/2021 - 10:38 PM

so helpful, thank you so much

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Ryan Angeles 25/09/2021 - 10:38 PM

Quick Question: What's the other term for "Equity as % of Balance Sheet Total
"? TIA!

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shibu dey 25/09/2021 - 10:38 PM

You did a good job, great job and excellent job!

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craig taylor 25/09/2021 - 10:38 PM

Hi again lol on the day sales outstanding, the 150 is a number of what? Invoices, money made? I can’t see why a higher number means more days, more accounts receivable should be better right, more people paying, but I suppose one could be charging more for an item and this have the same revenue for less accounts receivable?? Sorryyyy

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craig taylor 25/09/2021 - 10:38 PM

Hey buddy, can I just check on the working capital for company b, you said they seem to be getting paid by customer before having to pay suppliers, it’s seems it’s the other way round, they have to pay there suppliers (accounts payable) first before getting paid by the customer as there is more going out than in, did I get that right??

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Laurentius 25/09/2021 - 10:38 PM

Alleen echte strijdes herkennen het Hollandsche accent 🙂

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