Welcome back to Career Readiness.

This is the course on finance for

non-financial professionals, and this is module three.

In module three, we're gonna be looking at ratios.

Ratios can be a lot of fun because they're quick, they're easy.

And it's a way to look inside of a business and really start to see

how that business is performing, where it's strong, where it's weak.

We can often I, of often identify opportunities and threats so

there's a lot of correlation between a SWOT analysis and performing ratios.

The great thing about ratios also, is that ratios are just that, they're ratios.

Which means we can take a huge business and we can take a very small business, and

by running the ratios we're gonna be getting fractional numbers or percentages.

So, we're gonna be getting the same kind of information, and to see or be able

to compare these different business without regard necessarily to their size.

And when we see the differences then we can look and

say, well because this one is big, or this one is small,

we can, we can actually start explaining the ratios a little bit more.

Now, before we get on with the ratios, let's look at what ratios really are.

Ratios are quick and dirty, okay, ratios do not take us a lot of time usually.

Therefore, with efficiency usually can come reduced accuracy, okay?

And ratios are highly efficient, therefore accuracy of a single

ratio can often be or can sometimes be minimal, nominal.

Okay? So you don't wanna look at just one ratio.

When you wanna run, when you run ratios, you want to run several ratios.

You want to spend some time on them.

Okay?

The, we have a saying in finance,

if you torture the numbers long enough, they're bound to confess.

And this is what we're doing with ratios, we start to torture the numbers.

Now, also, you want to be careful,

either that you don't have a, a coerced confession.

Torture them too long and they'll say whatever you want them to say, right?

So, again,

the great thing about ratios, you've got some standard ratios, we run some ratios.

And we see what the numbers really tell us.

Now, the first classification of ratios that we have,

what we call liquidity ratios.

What is liquidity?

Liquidity is the, the cash available to an institution.

How liquid are they?

How much cash do they have?

And in the liquidity ratio, what we're concerned with is we want to know how

quickly a company can convert what it has, it's assets, into cash.

Because in the end, it's cash that you've got to use to pay your employees.

It's cash you've got to use to pay your creditors.

Okay.

So assets are great, but how quickly you can convert those into cash?

We've got a few different liquity ratios.

In fact there's many different equity liquidity ratios.

I'm just showing you the most common, the most popular.

And a great resource for you is the website investopedia.com.

I go to investopedia all the time if I want a new ratio,

if I'm wondering if there is a ratio I can use that, that's gonna tell me this or

that, or, or different ways to calculate a ratio.

We've got these ratios but as you'll see in the course material there's sometimes,

there's two, or even three different calculations for that ratio.

We say well that's the ratio and

this is how we calculate it, but we can also calculate it this way.

And we can also calculate it this way.

And with each of those calculations,

usually we're adding a bit of complexity and we're gaining a bit of accuracy.

So the first one is called the working capital ratio and basically, it's