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Methods for Analyzing Financial Ratios

Financial ratios by themselves provide very little information about a firm. We need to compare ratios across firms in similar industry sectors. The two methods for analyzing financial ratios for a firm are: time trend analysis and similar group analysis. Elaborate on how each of these methods can be helpful in understanding how a firm is performing relative to others using financial ratios analysis. The concepts of financial ratios analyze can provide insight into the health of the firm. How and why?

Solution Summary

How and why financial ratios provide insight into the health of a firm.