Jump to navigation Jump to search A loss ratio is a ratio of losses to gains, used normally in a financial context. Such companies are collecting premiums more profitability ratios wiki the amount paid in claims.
Conversely, insurers that consistently experience high loss ratios may be in bad financial health. The terms “permissible”, “target”, “balance point”, or “expected” loss ratio are used interchangeably to refer to the loss ratio necessary to fulfill the insurer’s profitability goal. This ratio is 1 minus the expense ratio, where the expenses consist of general and administrative expenses, commissions and advertising expenses, profit and contingencies, and various other expenses. For banking, a loss ratio is the total amount of unrecoverable debt when compared to total outstanding debt. These calculations are applied class-wide and used to determine financing fees for loans. Harvey Rubin, Dictionary of Insurance Terms, 4th Ed. Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance, p.
Robinson, “Use And Abuse Of The Medical Loss Ratio To Measure Health Plan Performance”, Health Affairs, vol 16, No. Franken warns against weakening law on health-care spending”. A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Ratios can be expressed as a decimal value, such as 0.
Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Ratios generally are not useful unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition are usually hard to compare. Financial ratios may not be directly comparable between companies that use different accounting methods or follow various standard accounting practices.
There is no international standard for calculating the summary data presented in all financial statements, and the terminology is not always consistent between companies, industries, countries and time periods. Various abbreviations may be used in financial statements, especially financial statements summarized on the Internet. Sales reported by a firm are usually net sales, which deduct returns, allowances, and early payment discounts from the charge on an invoice. Companies that are primarily involved in providing services with labour do not generally report “Sales” based on hours. These companies tend to report “revenue” based on the monetary value of income that the services provide. Cost of goods sold, or cost of sales. Note: Operating income is the difference between operating revenues and operating expenses, but it is also sometimes used as a synonym for EBIT and operating profit.
This is true if the firm has no non-operating income. Activity ratios measure the effectiveness of the firm’s use of resources. Debt ratios quantify the firm’s ability to repay long-term debt. Market ratios measure investor response to owning a company’s stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in company’s shares.