Accounting Ratios

Accounting ratios are a relative measure of two or more values taken from the financial statements of a business and can be expressed as a decimal value such as 0.45 or as a percentage e.g. 45%.

The site does not aim to list all possible ratios as many are not relevant to the smaller business, but is does give what are considered to be the most important ratios used in managing a business.

Accounting Ratios Analysis

Accounting ratios are used to analyse business trends and measure performance of both the business and the management.

One accounting ratio viewed in isolation will not tell you a great deal about a business. The key with using accounting ratios is to chose the ratios which are most critical to your business, decide on the formula to use, which should be the same as that used by comparable businesses in your industry, and consistently monitor the ratio over time relative to other ratios you have calculated.

Ratios in Accounting

Accounting ratios can be split into six main categories

  1. Profitability Ratios
  2. Liquidity Ratios
  3. Efficiency ratios
  4. Leverage Ratios
  5. Activity ratios
  6. Investor ratios

Popular Accounting Ratios Formulas

A selection of popular ratios from the Accounting Ratios Formulas Guide.

Last modified October 7th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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