What Are Financial Ratios Affect A Company's Health?

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Introduction Sometimes it’s not easy to say that a company is in good or bad health. It would be extremely difficult to just look at a company’s financial statement and tell that the company is doing well. To make it easier to compare company’s health, we have to associate number values known as ratios that are calculated from a company’s financial statements. These number values or ratios can then be compared to other company’s ratios, in the same industry, to show which company has a better health. The ratios that are being spoken about are called financial ratios. Very common types of financial ratios are liquidity ratios, profitability ratios and leverage ratios.
Liquidity ratios show how easily a company can pay its debts. This is valuable …show more content…

An example of this is the profit margin ratio. The profit margin ratio tells us how much profit the company earned compared to the company’s sales. In this situation, a higher ratio is better because a company wants to earn profit for every one dollar of sales that the company gets.
Finally, leverage ratios. These ratios can tell how much debt the company is using to help make the company run and stay alive. An example of leverage ratios can be the debt ratio. A debt ratio can tell us what percent of a company’s assets are being paid for by the company’s debt. In this case, a company would be considered safer if the debt ratio is …show more content…

The negative working capital and current ratio under 1.0 shows that the company needs to work on their liquidity ratios. Normally, have a negative anything is bad for a company’s operations. However, in some cases it is ok to have a negative working capital. Companies that operate with a negative working capital tend to be more adaptable when it comes to raising cash than companies with a positive working capital. Since Exxon Mobil Corporation is the 5th largest company by revenue, it is clear to see that they don’t have a problem making money. Maybe that is the reason why they operate the way that they

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