Finmazing

When it comes to investing in a company, solvency is a crucial aspect. It is necessary to determine company's ability to pay its debt obligations. Read on for a breakdown of what solvency ratios are, why are they important, various types of profitability ratio, and how to calculate them. What is Solvency Ratio? Solvency ratios are also known as leverage ratios which  helps us examine a company’s financial health. It helps us in determining whether a company has sufficient cash flow to manage the debt obligations that are due. Do not mix solvency ratios with liquidity ratios. They are totally different. Liquidity ratios determine the capability of a business to manage its short-term liabilities while the solvency ratios are used to measure a company’s ability to pay long-term debts.   Why are solvency ratios important? All the funds required to run the business are not acquired from owners. Many businesses take debt in form of bonds, debentures, and loan. In long term...

When it comes to investing in a company, liquidity is a crucial aspect. Liquidity ratio is an essential tool to determine liquidity position of a company. Read on for a breakdown of what liquidity ratios are, why are they important, various types of profitability ratio, how to calculate them and how to interpret liquidity ratios.   What are liquidity ratios? Liquidity ratios is a type of financial used to determine a debtor's ability to pay off current debt obligations without raising external capital. It is used to determine a company’s ability to pay its short-term debt obligations. The metric helps determine if a company can use its current, or liquid, assets to cover its current liabilities.   Why are liquidity ratios important? The liquidity ratio is a great ratio that quickly gauges the current financial health and well-being of a company. It can also give us a reflection of how well a company’s administration is managing working capital. It affects the cre...

There are numerous financial  metrics that an investors needs to check before investing in a company. If you're not tracking profitability ratios of a company, you probably should be. Read on for a breakdown of what profitability ratios are, their importance, various types of profitability ratios and how to calculate them.   What are Profitability Ratios? Profitability ratios are financial metrics that helps to evaluate the ability of a company to generate profit relative to its revenue, operating costs, assets, and shareholder equity during a specific period. They are used to evaluate the company’s ability to generate income as compared to its expense and other cost associated with generation of income during a particular period. They indicate company’s overall efficiency in using its assets to generate profit and value for shareholders.   Why are profitability ratios important? The sole purpose of commencing a business is to earn profit. In other words, the sole p...