# Ratio Analysis - Discussion

What are different ratio categories? Which category is most important to bondholders? Why? Which category is most important to stockholders? Why?

What are liquidity ratios? Why are they important? How may an investor use liquidity ratios in making investment decisions?

What items must be considered in a financial statement analysis? Which ratio categoryâ?"liquidity, profitability, or solvencyâ?"is most important when conducting financial analysis? Why?

What is the CAPM? Are CAPM assumptions realistic? Why or why not?

© BrainMass Inc. brainmass.com December 15, 2020, 8:40 pm ad1c9bdddfhttps://brainmass.com/business/capital-asset-pricing-model/ratio-analysis-discussion-460954

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1. What are different ratio categories? Which category is most important to bondholders? Why? Which category is most important to stockholders? Why?

Ratio Categories

a. Liquidity Ratios

i. Current Ratios

ii. Quick Ratios

iii. Working Capital

iv. Net Cash provided by operating activities

v. Free Cash Flow, etc

b. Profitability Ratios

i. Percentage changes in net sales and net income

ii. Gross profit ratio

iii. Operating income

iv. Net Income as a percentage of net sales

v. Earnings per share

vi. Return on assets

vii. Return on Equity

viii. Return on Common Stockholder's Equity

c. Measures of Long-term Credit Risk

i. Debt Ratio

ii. Trend in net cash provided by operating activities

iii. Interest Coverage Ratio

d. Measures for Evaluating the Current Market Price of Common Stock

i. Market value of financial instruments

ii. Price-Earnings ratio

iii. Dividend Yield

iv. Book Value per share

Which category is most important to bondholders? Why?

The bondholder is interested in the liquidity of the company and its credit risk. He considers the firms liquidity because he wants to ensure that the company has the liquid assets to pay the interest on ...

#### Solution Summary

Discussion of Ratio Analysis