{"id":69155,"date":"2015-03-06T11:52:44","date_gmt":"2015-03-06T16:52:44","guid":{"rendered":"http:\/\/countingpips.com\/?p=69155"},"modified":"2015-03-06T12:24:44","modified_gmt":"2015-03-06T17:24:44","slug":"five-key-financial-ratios-used-in-fundamental-analysis-to-enhance-forex-trading-profit-earning-potential","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/03\/five-key-financial-ratios-used-in-fundamental-analysis-to-enhance-forex-trading-profit-earning-potential\/","title":{"rendered":"Five Key Financial Ratios Used in Fundamental analysis to Enhance Forex trading Profit-earning Potential"},"content":{"rendered":"
March 6, 2015<\/div>
\r\n<\/div><\/div>

By Admiral Markets<\/em><\/strong><\/p>\n

Fundamental analysis is a method used in Forex trading wherein the price of a currency is determined by analyzing financial information which is important to a country. It is done by getting the ratio between values found in financial documents.<\/p>\n

It is difficult to use this method not because of the mathematical computations, but because of the various financial data present for the country. In conducting fundamental analysis, a Forex trader must take note of these five essential ratios:<\/p>\n

    \n
  1. Current ratio<\/strong><\/li>\n<\/ol>\n

    The current ratio, also known as the liquidity ratio, determines the ability of a country to have cash to pay its current obligations. It is obtained by dividing current assets by current liabilities.<\/p>\n

    A higher liquidity ratio means that the price of a country\u2019s currency goes up. As such, a lower liquidity ratio lowers down the currency price.<\/p>\n

      \n
    1. Debt-to-equity ratio<\/strong><\/li>\n<\/ol>\n

      Debt-to-equity ratio, also known as the solvency ratio, determines the ability of the country\u2019s capital to secure all its debts. It is obtained by dividing the country\u2019s total liabilities by its equity.<\/p>

      \r\n
      \r\n

      Free Reports:<\/p><\/div>\r\n

      \r\n

      <\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

      \r\n
      \r\n
      \r\n

      <\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

      \r\n<\/div>\r\n

      \r\n
      <\/div>\n

      A high debt-to-equity ratio means that the price of a country\u2019s currency goes down. As such, a lower debt-to-equity ratio raises the currency price<\/a>.<\/p>\n

        \n
      1. Quick ratio<\/strong><\/li>\n<\/ol>\n

        Similar to the current ratio, the quick ratio, also known as the acid test ratio, determines the country\u2019s ability to pay its short term liabilities using its most liquid assets. It is determined by dividing its current assets less inventories, by its current liabilities.<\/p>\n

        A high quick ratio means that the price of a country\u2019s currency goes up, and a low value means that the currency price goes down.<\/p>\n

          \n
        1. Return-on-equity ratio<\/strong><\/li>\n<\/ol>\n

          Return-on-equity (ROE) ratio determines the country\u2019s performance in terms of profitability. It is determined by dividing net income by equity.<\/p>\n

          A high ROE means that the price of a country\u2019s currency goes up; while a low value means that its price goes down.<\/p>\n

            \n
          1. Net profit margin<\/strong><\/li>\n<\/ol>\n

            Net profit margin determines the country\u2019s efficiency in terms of control. It is determined by dividing the country\u2019s net profit by its net sales.<\/p>\n

            A high net profit margin means that the country\u2019s currency goes high, and a low profit margin means that its currency price goes down.<\/p>\n

            These ratios can be used by a Forex trader to perform fundamental analysis<\/a>. It must be noted, however, that it only considers the country\u2019s financial condition. It does not consider internal and external factors such as war.<\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n

             <\/p>\n","protected":false},"excerpt":{"rendered":"

            By Admiral Markets Fundamental analysis is a method used in Forex trading wherein the price of a currency is determined by analyzing financial information which is important to a country. It is done by getting the ratio between values found in financial documents. It is difficult to use this method not because of the mathematical […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-69155","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69155","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=69155"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69155\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=69155"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=69155"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=69155"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}