Ratio Analysis - Discussion
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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?
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Discussion of Ratio Analysis
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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 ...
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