Organize your Financial Ratios Analysis with PALMS

Abstract

Financial ratios are useful measures to provide a snapshot of a company's financial position. There are so many of them, making it difficult to decide and memorize which one(s) would be the most appropriate to be used for getting the overall financial picture about a company. Additionally, the interpretation of the calculated ratios plays an important role in determining the quality of the financial analysis of the company. This article presents a mnemonic formula, which is intuitively appealing, original, and innovative; serving as an aid for identifying the five most useful categories of financial ratios to obtain the overall picture of a company's financial position, the PALMS (Profitability, Asset utilization, Long-term solvency, Market value, and Short-term solvency ratios). Not only is PALMS easy to remember, it is also flexible to use and systematically intuitive to interpret. PALMS help analysts to better organize their process of analyzing a company's financial position to arrive at a comprehensive and accurate conclusion about the company.