Whenever there is a need to make a comparison between different parts of the financial position of the company, the balance sheet with the financial ratio is used. In general, the balance sheet of the company is used in order to determine its financial position of the company.
People use the balance sheet in order to enter the details about the assets and liabilities of the company. When these details are entered, the sheet easily calculates the financial ratios. People are required to know about the assets and liabilities in order to be able to calculate the financial ratios.
[For Excel: xlsx & Polaris Office] [Size: 8.0 KB]
[OpenDocument Spreadsheet .ods] [Size: 30 KB]
Benefits of using the balance sheet with financial ratios?
A typical balance sheet helps a business in determining the following details
- When a business wants to compare two balance sheets or two components of the same balance sheet, it can use the balance sheet with financial ratios.
- When there is a need to make a comparison between two different components of two different income statements, the balance sheet with financial ratios can be used.
- This sheet is also very conducive whenever a business wants to get the details about the cash flow.
Types of financial ratios
The balance sheet provides a number of financial ratios. The most common of those ratios are
The efficiency ratio is used to compare the average receivables with the credit sales in order to determine how quickly a business receives the funds.
The efficiency ratio is used to determine how efficiently a business is working. For this purpose, this ratio also makes a solid comparison between the average inventory of the company and the cost of the goods a company sells. With this inventory ratio, it can be easily seen with what speed a business sells off its entire inventory.
Whenever there is a need to make a comparison between the liabilities and the liquid assets of the company, a business uses a liquidity ratio. This ratio is also helpful in determining whether the company has enough amounts of current assets in order to pay off the current liabilities or not. On the basis of results obtained from this comparison ratio, a business can take several necessary steps.
The number of assets a company has in its possession for liquidation is also determined with the help of the liquidity ratio.
Financial structure ratio
This ratio helps a person know the financial structure of the business. In this way, it can be determined whether a business is close to bankruptcy or not. With the result obtained, the business can mitigate the risks of bankruptcy by taking certain steps for reducing the number of debts a company has to pay off
The balance sheet and financial ratio template provide a complete structure of the balance sheet and all the financial ratios that reflect the balance sheet clearly. This template requires some business-specific modifications and then it is ready to use.
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