Ratio analysis compares the line-item data in a firm’s financial statements, which will reveal many understandings regarding liquidity, profitability, operational efficiency, and solvency. Moreover, ratio analysis can be used to look at trends for one or more firms within the same industry or sector. Ratio analysis compares line-item data.
Respond to one or more of the following in a minimum of 175 words:
- List five major categories of ratios and explain how they could be used to help a firm. What are the most important liquidity ratios and why?
- What are the main objectives of ratio analysis and why is this important to external users of the financial statements, such as investors?
- What is the difference between the current ratio and working capital?
- What are the main objectives of comparative analysis and why are they important to external users of the financial statements, such as investors?