Definition of financial reasons - What it is, Meaning and Concept

Knowing the etymological origin of the words that shape the term financial reasons is the first thing to do in order to establish the meaning of it.In this regard we must know this:-Reasons derives from the Latin "ratio", which means "Razon".-Financieras, meanwhile, emanates from the French verb "financer", which can be translated as "defray a debt" and, in turn, comes from the Latin "finis", which is synonymous with "end."

The financial reasons , which are also known as financial ratios , are ratios that allow comparisons between different financial data .For a financial reason to be valid, you must check information that corresponds to the same period.

Specifically, they are used with the clear objective that the reality of a company or a specific division of the company can be known in order to determine if it can carry out the process of assuming certain obligations or even new projects.

These ratios always make sense when compared in a time series.An isolated financial reason does not provide useful information about a company or organization.

There are numerous financial reasons.One of the most common points to the liquidity of an entity and is calculated by dividing the current assets of the firm by the current liabilities.so, the reason reveals that the company's monetary disposition to assume its immediate obligations.

Another usual financial reason is that it is revealed by the level of indebtedness with respect to the assets .To calculate this ratio , the total debt (the liability to long term plus current liabilities) for all assets.

In addition to the two aforementioned financial reasons, those of liquidity and indebtedness, there are two more:-Reasons for profitability that, as its name indicates, are aimed at measuring the degree of profitability that a company in question has in terms of in amounts, sales or capital.In this case, the operating profit margin, gross profit margin, asset turnover, net profit margin or return on investment are used as indicators.-Reasons for coverage These, meanwhile, proceed to measure the company's ability to cover what are the obligations it has.In this case, some of the indicators used are the ratio of total coverage or total liability coverage.

By having different financial reasons, an analyst can compare different accounting periods of the company to know how he behaved.From these evaluations , he can make projections.

It can be said, in conclusion, that financial reasons are analysis tools that favor decision-making.By knowing the reason of liquidity and comparing different periods, a manager of a The company can determine if it is a good time to incur more debt, for example.

Typically, the analyst manages not less than ten financial reasons to have a broad picture of the behavior of the company .Within those reasons, some will be more important than others when taking a decision.