5 Categories of ratios

Ratios can be classified into the following broad categories:

1. Profitability ratios
2. Liquidity ratios
3. Solvency ratios
4. Efficiency ratios
5. Investor ratios.

Now you will learn to calculate different ratios falling within each of the above categories using the financial statements of Remote Sensors Plc. It is important to note that definitions of different ratios vary. Although one definition of a ratio might be considered as valid as another, it is important to be consistent in calculating the ratios and for practice and assessment purposes it is recommended that you use the formulas provided in this session. Owing to the differences in definitions and calculations, you are also advised to be mindful of the differences in the ratios computed elsewhere (such as Fame or other financial databases).