We avoided classifying the financial ratios because a financial ratio may overlap several classifications, and there are several different titles for the classifications.

Let’s use the inventory turnover ratio as an example. During our review of several books and articles we found the inventory turnover ratio in a variety of ratio classifications including liquidity, solvency, activity, asset management, asset utilization, efficiency, and short-term creditor.

Even the current ratio was listed as a liquidity ratio, a solvency ratio, a short-term solvency ratio, and a short-term creditor ratio.

Rather than add to any confusion, we chose to downplay the ratio classifications.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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