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What is Financial Ratio Analysis?

What is Financial Ratio Analysis and Why is it Helpful to a Company?


Ratios are financial comparisons that are very helpful in analyzing a company's progress at any point in time. This free online course teaches you how to analyze your company using only 13 financial ratios. Financial ratios are meaningless without something to compare them to. You either compare them to ratios for other time periods for your company. This is called time series, or trend, analysis. This course will teach you how to do that.

You can also compare your financial ratios to the financial ratios for other companies in your industry. There are many sources of industry data you can tap. Unfortunately, most of them have a fee. Some are free and adequate, such as Bizminer. In order to do an adequate financial analysis, a business owner should do both a trend and an industry average.

It is common to do ratio analysis, both trend and industry, for a full fiscal year, a quarter, a month, or any other time period the business owner deems appropriate. In this way, the business owner can see how the company is progressing across time and how it is comparing to its industry and fix any problems before they become serious.

In this lesson, you will find links to the income statement and balance sheet we will use to do the financial ratio analysis, along with industry average information. You can do a complete financial ratio analysis with as few as 13 financial ratios. In this ecourse, we will calculate and analyze these 13 ratios, explain them from a time-series and industry point of view, and draw some conclusions for the business firm over the next 15 weeks.

You will be amazed at how much financial information you can gather and how much you can learn about the financial position of your business firm using only 13 financial ratios! Let's get started!

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