Financial Ratios

The purpose of this lesson is for students to understand and apply different financial ratios. In particular, students will learn how to calculate a current ratio, a net profit margin, a return on equity and a debt-equity ratio. Along with these four primary ratios, students will be introduced to other measures for calculating the liquidity, operating efficiency and risk of a firm.

In this lesson, we will be looking even more closely at the major financial documents filed by publicly traded companies. Specifically, this lesson focuses on how investors create financial ratios based on financial documents to better understand potential investments.

Financial analysts use the three financial statements to influence their decision-making. Financial statements serve as the evidence of a company’s internal health.

Read through the Knowledge@Wharton article “‘Finance & Accounting’ for the Rest of Us: A Conversation with Richard A. Lambert Links to an external site..”