Ratio Analysis Essay -- essays research papers

Companies strive from day to day to make their business publicly strong, monetaryly strong, and appeasing and profitable for its shareholders. Shareholders as well as the companys management use several tools to determine a companys health and direction. These tools are better cognise as ratio analysis. Ratios are among the more widely used tools of financial analysis because they provide clues to and symptoms of underlying conditions.2 Ratios help measure a companys liquidity, activity, profitability, leverage and coverage.1 These five measured sections show how ratio analysis is used in decision-making, how a firm can measure its financial situation and financial performance, and the strengths and weaknesses of the company.The term ratio analysis can be broken down into smaller sections. The first is a accepted ratio which is the ratio of current assets to current liabilities. This ratio shows how well a companys current liabilities are covered.1 Even though this ratio is used often, it does have its limitations. Since it shows all current assets it does not differentiate among the assets with regard to their degrees of liquidity, show it can show skued results .Another commonly used ratio is the acid-test ratio, also known as the quick ratio. This ratio shows an investor how the short-term liquidity, or how quickly the companys assets can be turned into cash.2 Inventory turnover is an important and often overlooked ratio that indicates inventory levels. A menial turnover...