Question

As an investor, what should you look for when performing ratio analysis of a company? What cautions should you take when reviewing ratios? Are there limitations to the analysis?

Answer 1

Performing ratio - Performing ratio means how many sales or revenue is generated by a company by spending a amount of fixed assets.
Formula -
An investor should check what amount of sales is on a cash basis, whether to increase the performing ratio company is able to generate more sales on a credit basis and these credit amount from debtor is never recovered from them.
Caution should be taken by investor while analysis a company basis on the performing ratio, investor has to take his on adjustments while analysis a report on the company or analysis a ratio of a company.
These analysis are of some limitations because these ratios are made by management and these can be manipulated easily, Investor has not fully rely on these ratio, he has to do further investigation while taking a decision on the company while investing on it.

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