1.3.1 From Numbers to Meaning

1.3.1 From Numbers to Meaning

Now that we better understand the ratios, let’s take a look at some numbers.  Often in finance, we play detective – use the ratios as clues for which columns are which industry.

Best Ratio?

When there are so many numbers, it’s hard to focus on what’s really important. Of the ratios previously discussed, which do you think is most important? (listed here again)

  • Current Assets/Current Liabilities
  • Cash, MS, and ARs/Current Liabilities
  • Inventory Turnover (X)
  • Receivables Collection Period (Days)
  • Total Debt/Total Assets
  • Long-term Debt/Capitalization
  • Revenue/Total Assets
  • Net Profit/Revenue
  • Net Profit/Total Assets
  • Total Assets/Net Worth
  • Net Profit/Net Worth
  • EBIT/Interest Expense
  • EBITDA/Revenue

You’re going to disagree with your peers – that’s ok. People in the real world have widely different opinions on this question.

What Do Our Experts Think?

Let’s see what our experts think are the most important ratios.  You’re going to hear some terms you may be unfamiliar with here – don’t worry about it too much. We’ll go over them all within the course. For now, listen to the way they think about the numbers as living, breathing things and realize that everyone looks at numbers a bit differently.

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