Marvelous Ratio Analysis Between Two Companies
Ratio can be define as between relationship between two figures expressed in arithmetical terms called ratio.
Ratio analysis between two companies. Analysts and investors utilize ratio analysis to scrutinize the financial health of companies by scouring past and present financial documents. Ratio analysis is mainly done using financial statements for examining the financial health of a business. Financial statement analysis is used to identify the trends and relationships between financial statement items.
Appendix B shows that we have analyzed three important liquidity ratios. This will show the difference of everything between both these companies. A ratio you will remember from grammar school is the relationship between two numbers.
For example if the average PE ratio of all companies in the SP 500 index is 20 and the majority of companies have PEs between 15 and 25 a stock with a PE ratio of seven would be considered. Types of Ratios Financial Ratios. Of these three the best indicators of liquidity when trying to show trends are the Acid test and the Current Ratio.
The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Liquidity Ratios Assess ability to cover current obligations Leverage Ratios Assess ability to cover long term debt obligations Operational Ratios. Both internal management and external users such as analysts creditors and investors of the financial statements need to evaluate a companys profitability liquidity and solvency.
A financial ratio is a relationship that indicates something about a companys activities such as the ratio between the companys current assets and current liabilities or between its accounts receivable and its annual sales. A current ratio of 2 and an acid test of 10 are considered adequate liquidity Marshall 2002. By using comparative data we can demonstrate how a company is performing over time plus we can use the ratios to.
Liquidity ratio is conveying the ability to repay. Investors generally use ratios to evaluate companies and make comparisons between companies within an industry. Ratio Analysis Paper Before beginning an analysis of a company it is necessary to have a complete set of financial statements preferably for the pas few years so that historical trends can be obtained.