 Welcome to Unit 9 of Sailor.org's Introduction to Financial Accounting. This unit is divided into four subunits and will take about three hours to complete. Remember that in Unit 3 you learned how to prepare a company's financial statements. Remember that financial statements include balance sheets, income sheets, statements of shareholders' equity, and statements of cash flow. In this unit you will learn to calculate financial ratios when given a company's financial statements. Financial ratios are calculations used to determine how well a company is doing financially. There is no one magic number to reach when it comes to financial ratios. In some cases we want the ratio to be as high as possible. In other instances we want the ratio to be low. The ideal financial ratio changes depending on the industry the company is in. For example, a construction company will often have a higher debt-to-income ratio than say a company that custom builds computers for people. Because the construction company had to take out loans to purchase the heavy earth moving equipment it needs to operate. In this unit and the next you will be able to play the role of an analyst. Analysts use a company's financial statements and financial ratios to determine the growth and viability of a company. They then use that information to decide whether or not they want to invest in that company. You're going to calculate financial ratios related to a company's liquidity or ability to make money and a company's solvency or ability to meet its financial obligations. This unit may seem math heavy but the calculations are very simple. Often only one or two long steps. Though simple these ratios are very valuable. And the next unit will make some qualitative observations from the quantitative ratios you calculated in this unit.