Before this, we have spoken about Interest Coverage and Debt to Equity ratios under the Leverage Ratio category. Now, we will move to Debt to Asset and Financial Leverage ratios, which are also under the Leverage Ratio category.
But before that, as usual, this is what it’s all about:
When considering investments or trades, there are generally two approaches used by people to analyze their prospects. These approaches are known as technical analysis and fundamental analysis.
Each approach utilizes different methods to evaluate the worthiness of companies. In this case, we will focus on the fundamental investors, also known as value investors, and their way of evaluating investments.
Simply, fundamental investors seek to identify the intrinsic value of a company. They do this by examining the financial statements of the company, including the Profit & Loss Statement, Balance Sheet, and Cash Flow Statement. You can click on the hyperlinks provided for a comprehensive guide on how to read these statements.
How do they examine all the financial statements above? By using financial ratios! If you want a general overview of how financial ratios work, check out this article — Fundamental: Introduction to Financial Ratios.
There are four branches of financial ratios available: Profitability, Operating, Leverage, and Valuation.
Please also look at the chart below to get a full picture of where we are.