FINANCIAL RATIOS, FORMULAS, AND INTERPRETATION
One key element in any financial analysis is the comparison of financial ratios. The usefulness of financial ratios is
increased as individual ratios are compared with each other over time. For instance, an analysis that explains a change
in the current ratio over the past two years will be more useful to the reader than an explanation of the variance between
that company's current ratio and a published industry average current ratio. The use of financial ratios can be an excellent
tool in financial analysis; however, mere comparison to industry averages may have limited value.
The primary benefit of financial ratio analysis lies in determining the cause of changes in ratios over time. Industry averages
of various ratios can be useful as a beginning benchmark for comparison purposes and as an indication of industry competition.
The interpretation of financial ratios provided is not intended to represent all possible interpretations and is only an example
of how these ratios may be used. There may be other interpretations of these financial ratios.