Question

Ratio analysis is an important analytical tool to use when analyzing the financial statements and there are a lot of ratios when it comes to this type of analysis. You need to understand each one in order to make better decisions about the business and evaluate its overall financial health. If you were analyzing a business and they had:

• A current ratio of 1.4
• Debt ratio of .8
• Number of days’ sales in inventory of 20
• Return on equity of 40%

What would be your overall assessment of the business and why? What additional information would you want to look at and why?

Answer 1

ANSWER:

Current proportion of 1.4 implies that the organization's present resources = 1.4*current liabilities. As it were the organization's liquidity position is genuinely acceptable and it can without much of a stretch meet its present liabilities. We can say that the organization's transient dissolvability is genuinely sensible.

Obligation proportion is 0.8. It ought to be noticed that obligation proportion = complete obligation/investor's value. In this way for the organization complete obligation/investor's value = 0.8. We can say that obligation is 80% of the organization's value. Obligation is lower than value and this implies the organization isn't utilizing obligation and money related influence. This implies the level of assurance appreciated by lenders of this organization is genuinely sensible.

Number of days deals in stock = 20. It ought to be noticed that no. of days deals in stock = stock/Cost of products sold *365. The proportion here demonstrates that the organization takes 20 days on a normal to change over its stock into deals. The organization is genuinely effective while changing over its stock into deals and it implies that it doesn't need to bring about extra costs like holding costs and conveying expenses of stock.

Profit for value = net gain/investors value. The figure of 40% is brilliant and suggests that the organization gives generally excellent profits for the value subsidize put resources into its tasks.

In this way we can say, from the above numbers, that the organization is in a decent budgetary condition while thinking about its transient dissolvability, influence, productivity and benefit.

Extra data that I will need to take a gander at is a portion of the valuation proportions of the organization like value income proportion and market an incentive to book esteem proportion. This is on the grounds that market esteem mirrors the consolidated impact of hazard and return thus it will empower me to do a thorough examination of the organization's presentation.