Financial Ratios Key Terms

These financial ratios key terms are worth their weight in gold

By Jennifer Ehlenfeldt, Freelance Writer

The amount of financial ratios available to analyze a company's financial well-being seems endless, but understanding the basics of financial ratios can help you sift through the many types of ratios and how they are used to keep track of assets, liabilities, sales and much more.

Learn the basic financial terms associated with distinguishing ratio information. Get key terms under control before starting any financial ratio calculations so you don't run into a number you're not sure how to calculate.

Baseline

The baseline is a number figured by using past financial information. It is needed when you start using financial ratios to determine a current situation as it compares to your company's past financial history.
Try: Read the definition of baseline and find out more about financial ratio analysis at American Express.

Fixed asset

A fixed asset is a tangible item used to produce income. The item must be something in use for at least a year to be considered fixed, because it is a long-term property.
Try: Fixed asset is defined at Investopedia. The website also includes many other financial ratio terms and definitions.

Growth ratio

The growth ratio is a rate at which the company is expanding. There are several types of growth ratios used in financial analysis including sales, dividends and net income.
Try: Read about the growth ratio and many other financial ratios at Money-Zine.com. The website offers definitions and explanations of how ratios are calculated.

Solvency ratio

Solvency ratio is the measurement used to determine how well a company can repay its debts. Ratios are used with loan officers and investors considering company stocks.
Try: Read the definition of solvency ratio at eSmall Office and find out what types of information are needed to calculate the ratio.

Gross margin

Gross margin is a percentage calculated by dividing the profit totals by the revenue a company gains from sales. It is used in finding out how financially stable a company is.
Try: Read about financial ratios and the gross margin at The Financial Pipeline.

Current Ratio

The current ratio is a financial measurement showing how much a company owns in assets to cover any liabilities they have. It gives a good understanding of how much cash a company has to pay off immediate bills.
Try: BizStats includes an entire section on financial ratios. Use their glossary to get a definition of current ratio and other terms.