16 Financial Ratios for Analyzing a Company’s Strengths and Weaknesses
by Joe Lan, CFA
In the previous installments of AAII’s Financial Statement Analysis series, I discussed the three most commonly used financial statements—the income statement, balance sheet and cash flow statement.
In this installment of the series, I take an in-depth look at the most commonly used financial ratios. Click here for a downloadable spreadsheet that automatically calculates these ratios using financial statement inputs that you provide. Click here for detailed explanations on creating the ratios for Stock Investor Pro users.
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Over the years, investors and analysts have developed numerous analytical tools, concepts and techniques to compare the relative strengths and weaknesses of companies. These tools, concepts and techniques form the basis of fundamental analysis.
Ratio analysis is a tool that was developed to perform quantitative analysis on numbers found on financial statements. Ratios help link the three financial statements together and offer figures that are comparable between companies and across industries and sectors. Ratio analysis is one of the most widely used fundamental analysis techniques.
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