Question

What is one key ratio that might be used to best assess a company? Or does it depend?

Answer 1

The analysis of the company on the basis of ration depends on the type of industry in which the company is in. For example:-

1. For the Banks and Financial institutions the loan-to-assets ratio, and liquidity ratios are important.
2. For construction company the return-on-assets (ROA) ratio is important.
3. For the Information Technology company Fixed asset turnover ratio is important.

Different ratios are important for different company but there are few important ratio the are comman to all the set of the companies. The ideal value of the ratio may be different but they are important for the assessment of the company.

PE ratio :-

The price-to-earnings ratio measures its current share price against its per-share earnings . The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. PE ratios are used by investors and analysts to determine the comparative value of a company's shares in peer to peer comparison. It can also be used to compare a company against its own historical record .

Profitability ratio:-

Profitability ratios are used to assess a business's ability to generate earnings against its revenue, operating costs, balance sheet assets, and shareholders' equity over time. Company having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates that the company is doing well.