Accounting Ratio

What is the 'Accounting Ratio'

A way of expressing the relationship between one accounting result and another, which is intended to provide a useful comparison. Accounting ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Accounting ratios form the basis of fundamental analysis.


Also called financial ratio.

BREAKING DOWN 'Accounting Ratio'

An accounting ratio compares two aspects of a financial statement, such as the relationship (or ratio) of current assets to current liabilities. The ratios can be used to evaluate the financial condition of a company, including the company's strengths and weaknesses. An example of an accounting ratio is the price-to-earnings (P/E) ratio of a stock. This measures the price paid per share in relation to the profit earned by the company per share in a given year.

RELATED TERMS
  1. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ...
  2. Activity Ratios

    Accounting ratios that measure a firm's ability to convert different ...
  3. Combined Ratio

    A measure of profitability used by an insurance company to indicate ...
  4. Efficiency Ratio

    Ratios that are typically used to analyze how well a company ...
  5. Cash Ratio

    The ratio of a company's total cash and cash equivalents to its ...
  6. Profitability Ratios

    A class of financial metrics that are used to assess a business's ...
Related Articles
  1. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  2. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  3. Fundamental Analysis

    Efficiency Ratio

    There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ...
  4. Stock Analysis

    Expedia and More Big Movers on the Nasdaq on September 21, 2012

    This morning, the Nasdaq has moved little, the S&P 500 has decreased 0.3% and the Dow has been relatively flat. The recent surge in popularity of technological stocks has launched the Nasdaq ...
  5. Stock Analysis

    Sony Corporation and More Big Movers in Consumer Cyclical on September 17, 2012

    The market is having a bad day so far. The Nasdaq is trading down 0.2%; the S&P 500 is down 0.2%; and the Dow has slipped 0.2%. The consumer cyclical sector is a category of stocks that relies ...
  6. Stock Analysis

    ICICI Bank Limited and Other Big Movers In Financial on September 14, 2012

    The Nasdaq has climbed 1.1%, the S&P 500 has risen 0.6% and the Dow is up 0.4% on a good day for the market so far. The financial sector is the category of stocks containing firms that provide ...
  7. Fundamental Analysis

    Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  8. Trading Strategies

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  9. Stock Analysis

    Today's Major Technology Sector Movers: SMI and More

    This morning's trading has marked a bad day for the market so far. The Nasdaq has declined 1.9%; the S&P 500 has fallen 1.3%; and the Dow has slipped 1.1%. The technology sector is a category ...
  10. Stock Analysis

    Nasdaq Stocks, Including Baidu, Making Big Moves on August 21, 2012

    After this morning's trading, the Nasdaq remains relatively unchanged, the S&P 500 has moved up 0.3% and the Dow has increased 0.2%. The recent surge in popularity of technological stocks ...
RELATED FAQS
  1. What is the difference between efficiency ratios and profitability ratios?

    Learn about efficiency and profitability ratios, what these ratios measure and the main difference between efficiency and ... Read Answer >>
  2. What role does ratio analysis play in valuing a company?

    Learn about the role of ratio analysis in determining company value, including some of the most common ratios used by modern ... Read Answer >>
  3. How do I use ratios to perform a financial analysis?

    Learn which ratios are used in fundamental analysis. Find out how analysts measure company performance and financial health ... Read Answer >>
  4. Why do shareholders need financial statements?

    Discover the importance of a company's financial statements for stock shareholders in evaluating their equity investment ... Read Answer >>
  5. Which financial metrics are best for analyzing companies in the chemicals sector?

    Learn about some of the key financial metrics that investors and market analysts commonly use to evaluate companies in the ... Read Answer >>
  6. How does ratio analysis make it easier to compare different companies?

    Learn what ratio analysis is, how investors can compare companies within the same sector using ratio analysis and how ratios ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center