General performance ratios - Introduction

The group of general performance ratios allows for preliminary verification whether the structure of liabilities is correctly matched with the structure of assets and consequently whether the overall standing of the company is good.

The most important ratios belonging to this group are the golden balance and finacial rules, which are used to assess the sufficiency of long-term capitals with respect to the base of fixed assets, providing the foundation for company's stability in the long run. The balance sheet analysis in the context of assets and capitals relations allows to verify the financial potential of the company, at the time of business startup and also in further periods of operation.

Each balance sheet analysis, conducted according to the generally accepted methodology, uses partial ratios which allow to identify the factors, directly influencing the final results of the assessment and having impact on the financial standing of the company. Basing on the partial ratios one may determine the value of the synthetic ratio of financial stablility, whose increase clearly indicates an improvement of financial stability, while the decrease indicates stability deterioration.

Balance sheet analysis should be repeated periodically. It will allow to verify the correctness and effectiveness of the company's financial strategy and - if necessary - to introduce some changes and modifications to the current development strategy of the company, including also the financial aspects of its operation.

The list of general performance ratios is shown below. By browsing through the list, you may learn the scope of the assessment and the areas in which the balance sheet analysis can provide useful information being the basis of decision making process in the company (from the retrospective and prospective point of view).

The group of general performance ratios includes:

  • Assets structure ratio,
  • Capital structure ratio,
  • Long-term solvency ratio based on equity coverage,
  • Long-term solvency ratio based on fixed capital coverage,
  • Long-term solvency ratio based on debt coverage,
  • Synthetic ratio of financial stablility.

The aim of the balance sheet analysis is to present the facts and results of the company for the specific point in time (for the balance sheet date). In particular, we are interested in the state of assets and capital, their balance, profitability and financial liquidity. The balance sheet analysis allows to assess the correctness of already made financial decisions and to evaluate their impact on the company's standing (retrospective analysis). The results of this analysis allow in turn to take further decisions (related to company's operation, investments or sources of financing). The balance sheet analysis allows to prepare the forecasts of company's operation (prospective analysis), to verify the assumptions related to the risk management strategy and to implement further steps of the previously prepared business plan.