Ratios Week 5 Discussion 1

Anonymous
timer Asked: Jul 8th, 2014
account_balance_wallet $5

Question Description

Ratios provide the users of financial statements with a great deal of information about the entity.  Do ratios tell the whole story?  How could liquidity ratios be used by investors to determine whether or not to invest in a company?

Tutor Answer

khakaan
School: Cornell University

Monetary percentages utilized pretty much businesses to produce mathematical information on the earning, health and path with the company. Monetary percentages supply useful analysis and may guide drive supervision in the direction of making greater selections when they usually are construed correctly. However, there are numerous disadvantages to help depending upon these types of metrics. these are generally:

Lack of Comparability Among Businesses

Simply no Indication involving Root cause of Changes

Quotients Based on Guide Value

Ratio can certainly always be altered. Generating could be easily altered to exhibit a greater give back. Consequently, ratio can be very misleading in addition to should be cared for having extreme care. Moreover, every corporations is exclusive, in addition to percentages isn't going to say to the main story.

Consequently percentages doesnot say to the main story.

Liquidity percentages utilized to ascertain the companys capability to match it is short-term debts bills. Shareholders typically please take a near check out liquidity percentages while carrying out standard analysis on a corporation. Given that a corporation that may be regularly issues assembly it is short-term debts is a a greater risk involving personal bankruptcy, liquidity percentages are a good measure of no matter if a corporation should be able to pleasantly go on as being a heading problem.


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