Insurance Industry and its Financial Ratios

Financial statements tell the financial health of a company, and people with finance background can make conclusionon firms’ performance based on these financial statements. However, audience with almost any background canget a good understanding of company's performance, its performance relative to its peers or industry, simply by reviewing financial ratios of the company. Financial ratios arein-fact often used by people in management or in the accounting or finance areaswho have to make business decisions. These ratios providequick summary of most important financial information, touches every aspect of business, and comprehend financial statements in a most meaningful way that is precise and to the point and help decision makers reach right conclusions.

Balance sheet and Income statement are the most important financial statements and financial ratios can help interpret these statements. There are financial ratios that help understand how liquid a company is, how quickly a company can liquidate its assets if it has to, and whether it can pay off its short term and long-term debts on time. Financial ratios can also tell how much return stakeholders are getting in return for their investment, and can shed a light on management's performance. Financial ratios can also help understand how efficiently a company is rotating its inventory, collecting its dues from customers, or leveraging the credit provided by suppliers to the company.

We will discuss various financial ratios used in the financial sector with focus on an insurance industry. Insurance industry uses some ratios that are very industry specific and help understand performance of insurance companies.