Prompt: Overall purpose of financial ratios – Please write a paper about the purposes of financial...

Prompt: Overall purpose of financial ratios – Please write a paper about the purposes of financial ratios. Include a discussion of their use relative to the economy, the firm’s industry, the firm’s main competitors, and the firm’s past relative ratios.

Requirements: 500 words

Expert Solution

Overall purpose of financial ratios – Please write a paper about the purposes of financial ratios. Include a discussion of their use relative to the economy, the firm’s industry, the firm’s main competitors, and the firm’s past relative ratios.

FINANCIAL RATIOS

Financial ratio are indicators of a firms performance and financial situation. financial ratio is a quantitative method to know about companies performance profit, investment, company's liquidity, operational efficiency,and solvency by comparing information with the firm’s industry, the firm’s main competitors, and the firm’s past relative ratios.

PURPOSES OF FINANCIAL RATIOS

investors and analysts analysis all about company performance financial health by different ratio.
financial ratio is quantitative and fundamental analysis about company.
by using these ratios we can compare a company performance with other companies within an industry or sector.
ratios establish a trend line for company.
ratios highlight company changes.
ratios can reveal both positive and negative information about company.
in external environment ratios shows a complete picture of a company's financial position.
these ratios include the current ratio, return on equity, the debt equity ratio, the dividend payout ratio, the price earning ratio, liquidity ratio, solvency ratio, profitability ratio, efficiency ratio coverage ratio etc.

IMPORTANCE OF RATIO ANALYSIS

All internal and external stakeholders of the firm can analysis the financial statement.
ratios can helps in understanding the profitability of the company.
ratios can show the operational efficiency of the firms.
ratios can helps to know about liquidity of the firms.
its helps in identifying the business risks of the firm.
its helps in identifying the financial risks of the firm.
its helps for planning and future forecasting of the firm.
its helps to compare the performance of the firms.
its helps to knows about economy conditions of the firms.

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