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Ratios Made Simple: A beginner's guide to the key financial ratios by Robert Leach

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Introduction

What is a ratio?

A ratio is simply one number divided by another. In financial terms, an accounting ratio is (usually) one figure from a set of accounts divided by another figure.

As even the simplest balance sheet and profit and loss (P&L) account is likely to contain at least 50 figures, there is a potential to produce 2500 ratios just from these two financial statements. This is before we look at other statements and the notes to the accounts. However, many of these ratios would be meaningless. Only a few ratios produce a number which will assist an investor.

This book lists the main ratios in categories of what they are indicating. These categories are listed in approximate order of relevance to the investor. Each ratio ...

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