-The accounting data from the Financial statements will help the analysts to interpret and evaluate the firm’s performance
-Financial ratio will allow the analysis to create comparable measures of a firm’s financial data across time (trend analysis) and with other firms within the same industry (cross sectional analysis) in order to locate the symptoms.
-Thus the analysis must determine the cause and find a solution to it.
-In learning about ratio, five broad ratio categories are discussed here:
Liquidity Ratios-to know how liquid is the firm-to measure the adequacy of a firm’s is cash resources to meet short term obligation on time.
Activity Ratios-to evaluate the firm’s efficiency in utilizing the firm’s assets/resources.
Solvency Ratios-to know how the firm finances its assets-to examine the firm’s capital structure and the ability of the firm to pay its debt.
Profitably Ratios-to measure the efficiency of the firm’s activities in generating profits.
Ownership Ratios-to assist the stockholders in evaluating the firm’s activities and policies that affect the market prices of the common stock.