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Financial Ratio Analysis and Types of Ratios

Navigasi - Financial ratio analysis is related to financial statements, because financial ratio analysis is indeed carried out on financial statements, the analysis is usually used to see whether the company's finances are healthy or not. In terms of financial ratio analysis is a way that makes comparisons of company financial data more meaningful. Financial ratios are the basis for answering several important questions regarding the financial health of the company. (Samryn, 2011: 409)

Financial Ratio Analysis and Types of Ratios
Financial Ratio Analysis and Types of Ratios


Meanwhile, according to Warsidi and Bambang (2000) in Fahmi (2011: 108), financial ratio analysis is: "Financial ratio analysis is an instrument of company performance analysis that explains various financial relationships and indicators, which is intended to show changes in financial conditions or operating performance in the company. past and helps to describe the pattern of these changes, to then point out the risks and opportunities inherent in the company in question.”

Meanwhile, according to Sutrisno (2013: 212), explains that financial ratio analysis is:

"Connecting elements in financial statements such as elements of various assets with one another, elements of liabilities with each other, elements of assets with liabilities, elements of balance sheets with elements of the income statement".

Based on the explanation of some of the definitions above, it can be understood that financial ratio analysis is a tool used to measure the weaknesses and strengths of companies in the financial sector by comparing one number with other numbers in the company's financial statements. Thus, the analysis of financial statements is an important thing to learn.

Benefits of Financial Ratio Analyst


Financial ratio analysis has its own benefits. According to Fahmi (2011: 109), the benefits of financial ratio analysis are as follows:

  1. Financial ratio analysis is very useful to be used as a tool to assess the company's performance and achievements.
  2. Financial ratio analysis is very useful for management as a reference for planning.
  3. Financial ratio analysis can be used as a tool to evaluate the condition of a company from a financial perspective.
  4. Financial ratio analysis is also useful for creditors, it can be used to estimate the potential risks that will be faced associated with the existence of guaranteed continuity of interest payments and repayment of loan principal.
  5. Financial ratio analysis can be used as an assessment for the organization's stakeholders

Based on the five benefits above, it can be understood that all the benefits of financial analysis can be felt by two types of people, namely people who are involved in business, with financial ratio analysis he will use the results of the analysis as a reference in managing his company, while for people who are not involved such as potential investors and so on can use financial ratio analysis as a precaution in investing, because with the results and analysis potential investors can find out the state of a particular company.

Types of Financial Ratio Analysis


According to Fahmi (2011: 121), financial ratios are grouped into six groupings, namely:

1. Liquidity Ratio


Ratio that describes the company's ability to settle its short-term obligations on time. There are four types of liquidity ratios, namely:

  1. Current Ratio
  2. Quick Ratio or Acid Test Ratio
  3. Net Working Capital Ratio
  4. Cash Flow Liquidity Ratio

2. Leverage or Solvency Ratio


A ratio that measures how much the company is financed with debt. The use of debt that is too high will endanger the company because the company will be included in the category of extreme leverage (extreme debt), namely the company is trapped in a high level of debt and it is difficult to release the burden. Therefore, the company should balance how much debt is worth taking and where are the sources that can be used to pay off debt. In general, there are eight types of leverage ratios, namely:

  1. Total Debt to Equity Ratio
  2. Total Debt to Total Assets Ratio
  3. Time Interest Earned
  4. Cash Flow Coverage
  5. Long-term Debt to Total Capitalization
  6. Fixed Charge Coverage
  7. Cash Flow Adequacy

3. Activity Ratio


The activity ratio is a ratio that describes the extent to which a company uses its resources to support company activities, where the use of this activity is carried out optimally with the aim of obtaining maximum results. The activity ratio in general consists of four kinds, namely:

  1. Inventory Turnover
  2. Day Sales Outstanding
  3. Fixed Assets Turnover
  4. Total Assets Turnove

4. Profitability Ratio


This ratio measures the effectiveness of the overall management which is indicated by the size of the level of profit obtained in relation to sales and investment. The better the profitability ratio, the better it describes the high ability of the company's financial gains. In general, the profitability ratios consist of:

  1. Gross Profit Margin
  2. Net Profit Margin
  3. Return On Total Assets
  4. Return On Equity
  5. Growth Ratio

5. Growth ratio


namely the ratio that measures how much the company's ability to maintain its position in the industry and in general economic development. This growth ratio is generally viewed from various aspects, namely in terms of sales, Earning After Tax (EAT), earnings per share, dividends per share, and market price per share.

6. Market Value Ratio


The market value ratio is a ratio that describes the conditions that occur in the market. This ratio is able to provide an understanding for the company's management on the conditions of implementation that will be carried out and their impact in the future. This ratio consists of:

  1. Earning Per Share
  2. Price Earning Ratio or Price Profit Ratio
  3. Book Value Per Share
  4. Price Book Value
  5. Dividend Yield
  6. dividend
  7. Payout Ratio

Thus the explanation of the analysis of financial statements, the benefits and the types of ratios, hopefully the article above can provide useful information for readers.
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