Accounting Ratio

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Accountant

    A professional person who performs accounting functions such ...
  2. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  3. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  4. Price/Earnings To Growth - PEG ...

    A stock's price-to-earnings ratio divided by the growth rate ...
  5. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. A Breakdown Of Stock Buybacks
    Investing

    A Breakdown Of Stock Buybacks

  2. Reverse Engineering Return On Equity
    Options & Futures

    Reverse Engineering Return On Equity

  3. Playing Penny Stock-Like ETFs
    Stock Analysis

    Playing Penny Stock-Like ETFs

  4. Can Good News Be A Signal To Sell?
    Fundamental Analysis

    Can Good News Be A Signal To Sell?

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center