Accounting ratios, also known as financial ratios or performance ratios, are quantitative metrics used to analyze and evaluate various aspects of a company’s financial performance, position, and efficiency. These ratios provide insights into the relationships between different elements of financial statements and help assess the overall health and performance of a business. Accounting ratios are widely used by investors, analysts, and management for financial analysis and decision-making.

Here are some common categories of accounting ratios:

1. **Liquidity Ratios:**
– **Current Ratio:** This ratio measures a company’s ability to cover its short-term liabilities with its short-term assets. It is calculated as the ratio of current assets to current liabilities.

– **Quick Ratio (Acid-Test Ratio):** This ratio is a more stringent measure of liquidity as it excludes inventory from current assets. It is calculated as the ratio of quick assets (current assets excluding inventory) to current liabilities.

2. **Profitability Ratios:**
– **Net Profit Margin:** This ratio expresses the net profit as a percentage of total revenue, indicating the company’s profitability after all expenses, including taxes and interest.

– **Return on Assets (ROA):** ROA measures the efficiency of a company in utilizing its assets to generate profit. It is calculated as the ratio of net income to average total assets.

– **Return on Equity (ROE):** ROE measures the return earned on shareholders’ equity. It is calculated as the ratio of net income to average shareholders’ equity.

3. **Efficiency Ratios:**
– **Inventory Turnover:** This ratio measures how many times a company’s inventory is sold and replaced over a period. It is calculated as the ratio of cost of goods sold to average inventory.

– **Accounts Receivable Turnover:** This ratio measures how many times a company collects its average accounts receivable over a period. It is calculated as the ratio of total credit sales to average accounts receivable.

4. **Solvency Ratios:**
– **Debt-to-Equity Ratio:** This ratio indicates the proportion of a company’s financing that comes from debt relative to equity. It is calculated as the ratio of total debt to total equity.

– **Interest Coverage Ratio:** This ratio assesses a company’s ability to cover its interest expenses with its earnings before interest and taxes (EBIT). It is calculated as the ratio of EBIT to interest expense.

5. **Market Ratios:**
– **Price-to-Earnings Ratio (P/E):** This ratio compares a company’s market price per share to its earnings per share (EPS). It is widely used by investors to assess the relative value of a stock.

– **Dividend Yield:** This ratio measures the annual dividend income as a percentage of the stock’s market price. It is calculated as the ratio of dividends per share to market price per share.

These are just a few examples of the numerous accounting ratios that can be calculated to analyze different aspects of a company’s financial performance. The choice of ratios depends on the specific information and insights that stakeholders are seeking. Accounting ratios are valuable tools for financial analysis, benchmarking, and decision-making in various business contexts.