it is often said that anyone with a pencil can calculate financial ratios,but it takes a...

it is often said that anyone with a pencil can calculate financial ratios,but it takes a brain to interpret them. what kind of things should the analyst keep in mind when evaluating the financial statements of a given firm ?

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Its true that anyone can calculate the financial ratios through formulaes but its tough to interpret the financial position through those ratios because in order to evaluate the financial statements of a firm one must be well acquainted with the importance and rationale of such ratios. therefore, the analyst shall keep in mind the rational of these ratios like while interpreting the current ratio the analyst must be aware that current ratio shows the liquidity position of a firm that is whether the firm has sufficient short term assets to pay off its short term obligations and he shall also know that 2:1 is the ideal current ratio. similarly he must be aware that debt equity ratio shows how much funds the firm has borrowed and how much investment of money has been made by its owners. it will depict the loans it has to pay.

likewise, return on investments shows with respect to investments made by a firm that how much profit it is going to generate on the same.

jeff jeffy answered 1 year ago

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