Write a 4 page paper discussing the use of ratios in analyzing financial statements.
Write a 4 page paper discussing the use of ratios in analyzing financial statements.
What are the benefits of using the ratios discussed in your text when analyzing the balance sheet, income statement, and cash flow statement of an organization?
If you had to choose two key ratios to analyze a company in your chosen industry, which two would best serve your purposes, and why?
Determine which two specific ratios will give you the most important information for your analysis, and create a heading in your paper for each ratio.
Use specific ratios, not ratio categories. For example, explain the inventory turnover ratio, not “asset management ratios.”
Identify which statement provided you with the numbers for each ratio and explain how the ratio was calculated (e.g. “divide the cost of goods sold, found on the income statement by the inventory, found on the balance sheet”).
For each ratio, discuss what you would hope to learn about a company based on these ratios.
Look for industry averages of the two ratios you would use in your chosen industry and discuss reasons for possible variances in the ratio that one might find among companies in the same industry.
What are the dangers of overanalyzing using ratio analysis?
What information is important to consider in making an assessment of the financial health of a company in addition to the information gleaned from ratios?
Answer preview to write a 4 page paper discussing the use of ratios in analyzing financial statements.
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