Types of Financial Ratios

In general, financial ratios can be classified as follows:

1. Liquidity ratio is the rate the company's ability to meet its obligations that must be met. In other words, liquidity is to show the level of the company's ability to pay short term debts owned (Brealey, Myers, and Marcus, 1995). Some of these ratios, among others, Current Ratio, Cash Ratio, Quick Ratio, Net Working Capital To Total Assets Ratio, and Interval Measure.

2. Leverage ratio (lever) is used to measure the amount of funds for capital investment by business owners in the proposition with funds obtained from the creditors of the company. Some of these ratios is the Debt Ratio, Debt to Equity Ratio, Long Term Debt To Equity Ratio, Debt Coverage Tangible Assets, Interest Coverage, Debt Service Coverage, and Earning variability.

3. Activity ratios are ratios used to measure how effective use of funds owned by the companies concerned (Horne and Wachowicz, 1995). This ratio, among others, Total Operating Assets Turnover, Receivables Turnover, Average Collection Period, Inventory Turnover, Average Day's Inventory, Net Working Capital Turnover, Fixed Assets and Turnover.

4. Profitability Ratio is the ratio used to measure the ability of companies to generate profits for the company. This ratio, among others, Gross Profit Margin, Operating Profit Margin, Operating Ratio, Net Profit Margin, Return On Assets, and Return On Equity.

5. Ratio of Market Value is used to measure the market price relative to book value of the company. This ratio, among others, Earning Per Share (EPS), Book Value per Share (BVS), Devidend Yield and Payout Ratio Devidend.