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Ratio Analysis

For each category of financial ratios, give some examples of who would be likely to examine these ratios and why.

Category
1.Liquidity Analysis ie-current Ratio, Quick Ratio, Net working capital
2. Profitability Analysis Ratios ie- Return on Assets,Return on equity, EPS, Profit Margin
3. Activity Analysis Ratios ie-Asset turnover ratio, inventory turnover
4. Capital Structure Ratios ie- Debt to equity, interest coverage ratio
5. Capital Market Analysis Ratios ie- PE ratio, Market to book, dividend Yield

Solution Preview

1. Liquidity Analysis ie-current Ratio, Quick Ratio, Net working capital

This will be most used by short tem lenders and creditors. More than often there is a tying contract that binds the borrowing firm to maintain some minimum quick ratio or current ratio. This ensures that creditor are getting back their periodic interest payments on time.

2. Profitability Analysis Ratios ie- Return on Assets,Return on equity, ...

Solution Summary

The solution explains the different ratios in the question with suitable examples.

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