What do investment ratios reveal about a company's performance?

Investment ratios reveal a company's profitability, financial stability, and efficiency, providing insights into its overall performance.

Investment ratios, also known as financial ratios, are used to evaluate a company's financial performance. They are calculated using data from the company's financial statements, such as the balance sheet and income statement. These ratios provide a quantitative analysis of a company's profitability, financial stability, and efficiency, which are key indicators of its overall performance.

Profitability ratios, such as the return on investment (ROI) and return on equity (ROE), measure the company's ability to generate profits from its investments and shareholders' equity, respectively. A higher ratio indicates a more profitable company, which is generally more attractive to investors.

Financial stability ratios, such as the debt-to-equity ratio and the current ratio, assess the company's financial health and its ability to meet its short-term and long-term obligations. A lower debt-to-equity ratio suggests that the company is less reliant on debt to finance its operations, which reduces its financial risk. Similarly, a higher current ratio indicates that the company has sufficient assets to cover its short-term liabilities, which enhances its financial stability.

Efficiency ratios, such as the asset turnover ratio and the inventory turnover ratio, evaluate the company's efficiency in using its assets to generate sales and managing its inventory, respectively. A higher asset turnover ratio suggests that the company is more efficient in using its assets to generate sales, which can lead to higher profitability. Similarly, a higher inventory turnover ratio indicates that the company is more efficient in managing its inventory, which can reduce its holding costs and improve its cash flow.

In conclusion, investment ratios provide valuable insights into a company's performance. They allow investors, creditors, and other stakeholders to make informed decisions about the company's financial health and future prospects.