The gross profit margin analyzes how much of a profit a company makes on each sale. The formula used for the calculation of interest coverage ratio is-. In an organization, once the financial statement is prepared, it requires to be analyzed. The formula used for the calculation of profit earnings ratio is: 2. Inventory Turnover Ratio: Inventory turnover ratio is used to determine the speed of a company in converting its inventories into sales. A few basic types of ratios used in ratio analysis are profitability ratios, debt or leverage ratios, activity ratios or efficiency ratios, liquidity ratios, solvency ratios, earnings ratios, turnover ratios, and market ratios. A 2:1 is an ideal debt-equity ratio to be maintained by any company. The study of the significance of financial ratios for a company. © 2020 - EDUCBA. ROCE represents the profitability of the company with the capital invested in the business. Learn to perform Financial Analysis using Activity ratios. Control Ratios. Through this course, a learner will get to learn about the ratio analysis types, ratio analysis advantages, and why ratio analysis is important. Different companies may use different methods to value their inventory. 1 What is Ratio Analysis? What You Should Know About Profitability Ratio Analysis. There are two main component that use for calculation these ratios are liquid assets and liquid liability. The utility of ratio analysis lies in the fact that a single financial figure in itself does not hold much meaning by itself but when expressed in terms of other figures, it provides significant information for decision making purpose. Gross Profit Ratio: This is the ratio of Gross Profit to Net Sales and expressed as a percentage. If non-operating expenses are considered by mistake, the same may present wrong information. The formula used for calculating inventory turnover ratio is-. 1. 2. Analysis generally means diagnosing a . 2.1.1 Current Ratio; 2.1.2 Quick Ratio; 2.1.3 Super quick ratio; 2.2 Leverage Ratios. The three types of analysis are horizontal analysis, vertical analysis, and ratio analysis.