Question

Besides historical financial performance as reported in the financial statement of the Vitrox company, what else would you take into consideration in making investment decision?

give one main point and elaborate.

Answer 1

1a) Investment, in layman's terms,is sacrificing present consumption for future gains.it is a planned decision to put money in financial assets with a risk-return trade-off.it is definitely different from speculation and gambling , where one try to make quick gains in a short period of time,or keeping trying their luck.In other words " Purchase of financial asset that produces a yield that is proportionate to the risk assumed over some future investment period"

There are 3 types financial investments

1, Debts

2, Equities

3, Mutual Funds

Basically ratios used by the firm for analysis the financial statements.it is a systematic use of accounting ratios to interpret the financial statements for studying the financial position and investment decision.

there are different type of ratios

1, Liquidity ratios

2, Leverage ratios

3,Capital Gearing ratio

4, Activity ratios

5, Profitability ratio

6, Market test ratio

These type ratios are improtant for investment decision but the last three ratios are important for the investment desicion.

Activity ratio-: Acitivity ratio show how effictively a firm uses its available resources or assets. These ratios indicate efficiency in asset management.In other words, these ratios indicate the speed with which the resources are turned over or converted into cash.That is why these ratios are called turnover ratios.Higher turnover ratio means better use of resources.This further means higher profitability.

Profitability ratios-: The ultimate aim of any business enterprise is to earn maximum profit.The profitability ratios measure the ability of the firm to earn an adequate return on sales,total assets and invested capital,There are two types of profitability ratios,First ,Profitability ratios based on sales and profitability ratios based on investment.

Market test ratio-: Market test ratio are used for evaluating the shares and stock which are traded in the market.the value of shares in the stock exchange depends upon a number of factors like book value of share,future profitability of the company,return on equity shares,earnings per share etc...

So analyze of financial statement is helpful to investment decision by the uses ratios

Thanking you.......!