First, one can compare a present ratio with past (or expected) ratios for the organization to determine if there has been an improvement or deterioration or no change over time.

Second, the ratios of one organization may be compared with similar organizations or with industry averages at the same point in time. This is a type of "benchmarking" so that one may determine whether the organization is "average" in performance or doing better or worse than others.

For the professional, conducting such in-depth analyses is critical, allowing an individual, the banker, businessman or investor to make an informed business or investment decision.

	Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows: = current assets  current liabilities If below 1.0 = company is in serious financial danger. Above 2.0 = ideal, company has more than twice the current assets to cover current liabilities.
	Quick ratio (acid test) more stringent - measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities. = cash + investments + receivables            current liabilities (inventories and prepaid expenses not counted) Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry. In general, the higher the ratio,the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).

	Inventory turnover is an equation that measures the number of times inventory is sold or used over in a period such as a year. The equation equals the cost of goods sold divided by the average inventory. Inventory turnover is also known as inventory turns, stockturn, stock turns, turns, and stock turnover. = cost of goods sold         inventories Example (Global Gizmos has a turnover of 4.9) = $560,000    115,000 = 4.9 Inventory turn over 5 times a year. 365 days divided by 5 = 75 days. It will take 75 days to sell existing inventory. (good or bad depend on industry or competitor’s data)
	Receivables turnover measures the number of times, on average, receivables (e.g. Accounts Receivable) are collected during the period. A popular variant of the receivables turnover ratio is to convert it into an Average Collection Period in terms of days. Remember that the Receivable turnover ratio is figured as "turnover times" and the Average collection period is in "days". = sales on credit accounts receivable Example: Global Gizmos sales on credit = $648,000 accounts receivables = $135,000 turnover = $648,000                $135,000 = 4.8 times a year 365/4.8 = 76 days on average. (not good) 30 days=good

Debt to equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value). = long term liabilities    owners’ equity Global Gizmos has LTD of $90,000 and equity of $385,000 Debt to equity ratio = 90,000   385,000 or 23%