Balance sheet ratios compare the various line items on a balance sheet in order to infer the liquidity, efficiency, and financial structure of a business. The following list includes the most common ratios used to analyze the balance sheet:
Current ratio. Compares all current assets to all current liabilities to see if there are enough current assets to pay for current liabilities. Its main failing is that the inventory component of current assets can be difficult to sell off.
Quick ratio. Compares all current assets except inventory to current liabilities to see if there are sufficient assets capable of being liquidated in the near future to pay for current obligations.
Financial Structure Ratios
Debt to equity ratio. Compares the amount of all debt to equity. A high proportion indicates that the financial structure of a business may contain too much debt, which increases the risk of bankruptcy.