Financial ratios are used by lenders to make a decision on whether to provide finances to a business or not. These ratios can be used to evaluate the overall financial position of a business. To build up a strong credibility before its lenders, a business must strengthen its financial ratios.
The financial ratios are classified into four main categories, namely, liquidity ratios, activity ratios, solvency ratios and profitability ratios. Profitability ratios are a measure of the profitability and earnings of the business. One such important ratio which draws the attention of investors is the Return on Net Worth.