Summary: Financial Management

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  • 1 Ratio

  • 1.3 Edubook

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  • Ratio analysis makes connections between various elements of the annual account, which gives insight into the financial health of a business

  • By once comparing the key figures from a ratio analysis to relevant standards, a clear picture can be formed of a business's financial health.

  • Historical analysis means that key figures of a business are calculated during multiple moments of a certain period and are compared to each other.

  • In case of a lack of clear standards for assessing the calculated financial ratios of a business, the financial ratios could be compared to key figures of business from other industries.

  • An advantage of a ratio analysis is that it is guaranteed to give a good representation of reality.

  • 1.3.1 Liquidity ratios

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  • Static liquidity can be determined by means of various ratios:

    • net working capital
    • current ratio
    • quick ratio
  • Liquidity ratios are intended to give investors an idea of the extent to which a business can meet its financial obligations in case of liquidation.

  • Dynamic liquidity is preferable to static liquidity.

  • The net working capital is an example of a dynamic liquidity ratio.

  • If the current ratio is lower than 1, there is a positive net working capital.


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