9.8 Understanding ratio analysis
In companies annual reports we will come across many jargons like EPS, BV, among others. What does it all mean? Collectively, these terms are called financial ratios, because each of them is derived by dividing one of the balance sheet/profit and loss account item by another.
Let us understand some of these key ratios. You may also create your own ratios for easy understanding. The ratios may be divided into five groups:
- Stock Market Related Ratios
- Profitability Ratios
- Liquidity Ratios
- Capital Structure Ratios
- Activity Ratios