Lytton, 1991

Lytton, 1991

“How to Use Financial Ratios When Advising Clients” (Financial Counseling and Planning, Volume 2, 1991)

By: RUTH H. LYTTON, E. THOMAS GARMAN, AND NANCY M. PORTER

CONTACT: RUTH H. LYTTON (E-MAIL: lyttonr@vtvm1.cc.vt.edu)

POSTAL: Department of Housing, Interior Design, and Resource Management, VPI & SU, Blacksburg, VA 24061-0431 PHONE: (703) 231-6678

Use of financial ratios as a diagnostic and informational tool has become increasingly popular in financial counseling
and planning situations. Results of ratio analysis suggest insights not readily apparent from merely studying a balance
sheet and an income and expense statement. Nine financial ratios are presented, defined, calculated, and interpreted
using an illustrative case family. Application of the financial ratios by practitioners, educators, and researchers will
further clarify their usefulness for providing feedback on the financial situation, for measuring change in financial
status over time, and for providing recommendations to clients.

KEY WORDS: financial ratios, financial planning