Purchase Solution

How are financial ratios and trend analysis used to analyze and interpret financial statements?

Not what you're looking for?

Ask Custom Question

How are financial ratios and trend analysis used to analyze and interpret financial statements? Which category (profitability, efficiency, liquidity, gearing, or investment) of ratios is most useful for company managers and why?

With references.

Purchase this Solution

Solution Summary

How are financial ratios and trend analysis used to analyze and interpret financial statements? Which category (profitability, efficiency, liquidity, gearing, or investment) of ratios is most useful for company managers and why?

Solution Preview

Dear Student,

Ratios are very important profit tools in financial analysis that help managers implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas.
Ratio analysis is primarily used to compare a company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry.

All of those ratios are pretty much equally important to managers for steering the company in the right direction. However, in my opinion, profitability ratios play a greater role, especially when investors and stockholders are concerned. THose ratios show how ...

Purchase this Solution


Free BrainMass Quizzes
Motivation

This tests some key elements of major motivation theories.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.