Question

If you are performing a historical analysis of the company, which areas should you compare?
For example, ratio analysis or ROE ?? Which  measures are important in performing such analysis ?

Answer 1

If I am performing a historical analysis of the company I should be looking at the balance sheet valuation of the company mostly and I would be trying to find out the ratio analysis because ratio analysis is a combination of large number of ratios which will be providing me a scope of analysis in regards with the efficiency of the company along with liquidity and solvency of the company and Asset Management effectiveness of the company as well so it will provide me with the the analysis of company from different facet which will help me in gaining better idea about the the performance of the company in respect to its peers and find out whether the company is underperforming outperforming the industry.

Areas I will be looking at will include the the current ratio and the quick ratio of the company in order to find out the liquidity of the company and I will also be looking at the debt ratio and the debt equity ratio in order to find out the solvency of the company from the longer term perspective.

I will also be looking for return on asset and return on equity along with net profitability and profit margins on operating front and net income to find out the profitability of the company and the Asset effectiveness of the company.

For me, ratio analysis will always be important because the ratio analysis is a combination of different type of ratios Whereas, the return on equity will be just providing about a return ability of the shareholders and that will not be reflecting the performance in the long run.