People often explain ratios as comparisons between two things. It is a statement that shows how one item compares to another. Ratios are written in several different ways, including as fractions. They are also written with the word “to” or with a colon. Ratios are used in many different ways. They are taught to children in school as a way of comparing things and they are commonly used in the business world through financial ratios.
Compare two items. Ratios are used as a means of comparison. For example, if you have four apples and six oranges, you can create a ratio of 4 to 6. It can also be written 4/6 or 4:6.
First comes first. In all ratios, the first item mentioned is the first number of the ratio. All ratios have two numbers. For example if you have a ratio of men to women that is 10/15, the 10 represents the number of men because it is listed first.
Simplify ratios. Because ratios are written as fractions, they can be simplified. To simplify the ratio from above that is 10/15, divide both numbers by 5 to get 2/3. 2/3 is an equivalent fraction to 10/15. This ratio simplified means that there are two men for every three women. This is equivalent to having 10 men for every 15 women.
Calculate possibilities. For this example, assume that the ratio remains consistent, but now you have 50 men. You can calculate how many women you should have based on knowing how many men you have. To calculate this, determine what number is multiplied by the 10 men to get 50 and then multiply that some number times the 15 women and the answer will be the number of women you have. To get from 10 to 50, you need to multiply the 10 by five. Multiply the 15 by five to get 75. The new ratio is now 50/75.
Learn how businesses use ratios. Businesses often use ratios to compare performance information from financial statements. A common ratio is the current ratio which is calculated by dividing the current assets by the current liabilities. When companies use financial ratios, they compare the answers to prior periods' answers to determine whether the ratio improved. They also compare the numbers to industry standards to determine how well their company is performing compared to others in the same business.
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