What are some common ratios used to analyze financial information?
Which are the most important? What are some examples of how ratios are used in
the decision-making process? What are the differences between
horizontal and vertical analyses?
The most common ratio is the ratio analysis which is mostly used my investors and creditors today. It is the most common form of financial analysis. It provides relative measures of the firms condition and performance. Horizontal analysis is used to evaluate the trend in the accounts over years, while vertical analysis, also called a "common size financial statement," discloses the internal structure of the firm. It indicates the existing relationship between sales and each income statement account.