Question

Please describe importance of Profitability and Liquidity Ratio analysis(ratios) in Financial Analysis What is Cash Conversion Cycle and why it is important financial measure?

Answer 1

Liquidity ratio is used for analysing the the overall liquidity in the hands of the company in order to discharge the debt requirement and all such fixed repayment so the company is always needing a higher amount of cash in its hands in order to have the flexibility of discharging the current debt capital and it will also provide the company with competitive edge as higher amount of liquidity will mean that the company is having a higher amount of current assets over the current liabilities

profitability ratios reflects the overall profit generation ability of the company and it is always desired by the investor that the company is profit making and it is making high amount of profits in the long run so profitability ratio will include profit making by the company on operational front along with overall operational and non operational front.

Cash conversion cycle is a conversion cycle which is reflecting the overall time duration which is taken by the company in order to convert its various items in relation to sales and inventory to cash and company will always want to have a a better cash conversion cycle so that it can have optimum liquidity on its hands which will help in maximizing the rate of return.

cash conversion cycle will always be important because it will help the company in having a higher amount of liquidity and maximizing the rate of return.