Question

post your observations on the value of the ratios by category (e.g. management effectiveness, profitability, and liquidity). How does ta company's ratio compare to the industry’s benchmark ratio? What recommendations might you make to improve certain ratios as compared to industry? Which category or type of ratio do you find most useful in evaluating a company’s performance?

Answer 1

VALUES OF RATIOS

1 SOLVENCY AND LIQUIDITY RATIO

Solvency ratios are ratio used to measure the company's ability to meet the long term liabilities. Liquidity ratio is similar to solvency ratios but it is used to measure the company's ability to meet it's short term liabilities both ratio are important because these ratio are mainly checked by creditors for granting loans to companies. Current ratio, quick ratio,cash ratio are example of current ratio and debt to equity ratio, time interests earned ratio, debts to assets ratios etc .

2 EFFICIENCY RATIO

efficiency ratios are used to measure how well or how efficiently the company uses its resources. Efficiency ratio includes inventory turnover ratio, account receivables turnover ratio, account payable turnover ratio,fixed assets turnover ratio, total assets turnover ratio etc .

3 PROFITABILITY RATIO

Profitability ratio are used to measure the profit earning capacity of company. These ratio indicates how well a company uses its assets and manage operations. Example net profit margin, gross profit margin, return on assets and equity etc.

4 MARKET VALUE RATIO

These are several ratios that show case the market value of the company related to its stock pric ,earnings capacity of stock etc . This type of ratios includes earning per share , price earning ratio , earning yield ratio etc .

How does ratio compare to industry benchmark ratios

For investors and business management alike , a few critical financial ratios help to assess companies financial health. One of the common way of using these ratios is to compare them, ratio by ratio with the financial ratio of industrial benchmark average.

* Ways to improve financial ratio

.faster conversion cycle of debt or account receivables

. Pay off current liabilities . It will lead to discount from investors and improve profits

. Sell of un productable asset .it will increase the cash level

.improve current assets by rising shareholders fund

.sweep bank accounts. First of all the management of the firm should always try to cut down hard cash level and keep the money in the bank

* Most useful ratio in evaluating company performance

There dozens of financial ratios , but these six ratios are particularly useful for a understanding of companies financial health. They are working capital ratio, quick ratio ,earning per share ,price to earnings ratio, debt to equity ratio and return on equity ratio  

The above are the detailed explanations