What role does financial ratios play in a company? Analyze the commonly used financial ratios by categories. Using Kindred Healthcare, Inc., how does the company's financial ratios compare to those of the nation's healthcare industry? How could the company improve? What suggestions would you make to the company?
1. What role do financial ratios play in a company? Analyze the commonly used financial ratios by categories.
Financial ratios measure a company's performance and financial condition and analyze industry trends compared to other companies. Financial statements contain a lot of information and ratio analysis is an essential part of analyzing financial statements.
The ratio categories are liquidity ratios, profitability ratios, debt ratios, operating performance ratios, cash flow ratios, and investment valuation ratios. This can be broken down further into the common types of ratios used in each category. The current ratio (current assets/current liabilities) and quick ratio (current assets-inventories/current liabilities) are commonly used liquidity ratios. Return on assets (net income/total assets) and return on equity (net income/shareholders' equity) are profitability ratios. Debt ratio (total debt/total assets), debt-equity ratio (total liabilities/shareholders' equity), and interest coverage ratio (EBIT/interest expense) are common ...
Solution includes a categorical breakdown of various ratios used in financial statement analysis, comparison and trending. Ratio information is then applied to suggest improvements to Kindred Healthcare.