FINANCIAL RATIOS
- What methodologies are available for using financial ratios as an analytical tool?
- What are the key financial ratios for managers, owners and lenders?
- How can financial ratios be used to model the financial performance of a company?
General approach to financial ratio analysis
- A variety of financial ratios are available for analytical purposes
- Limited only by the imagination
- Generally, a few selected financial ratios will produce the insights that the analyst needs
- Consider several analytical viewpoints when deciding which ratios to calculate and analyse:
- Managers: responsible for operating efficiency, profitability and the allocation of resources
- Owners: interested in current and long-term profitability of their investment; expect earnings, dividends and growth
- Lenders and creditors: interested in the company's ability to make interest and principal payments as they come due
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