Professional Documents
Culture Documents
Lessons Summary - Ratio Analysis
Lessons Summary - Ratio Analysis
SUMMARY
1. Financial analysis is the use of financial statements to analyze a firm’s financial position and
its performance
2. To make financial information that is sources from financial statement be more useful,
financial ratios that restate the financial figures in relative terms are used to identify the
financial strengths and weaknesses of a firm.
4. Leverage/Solvency Ratios: investigating how a firm being finances and provide indication
whether a firm is able to meet the interest payments.
a. Debt to Total Assets Ratio = Total Debts / Total Assets
b. Debt to Equity Ratio = Total Debts / Total Equity
c. Time Interest Earned Ratio = Income before tax and interest/Interest Expense
d. Cash- Debts Coverage Ratio = Net cash from operating activities / average liabilities
5. Liquidity ratios: to find out to what extent to which the firm has adequate cash flows or assets
that ear to cash that would be sufficient to meet the short-term liabilities of the firm.
SHAZA 1
USES & LIMITATIONS OF RATIO ANALYSIS
USES LIMITATIONS
SHAZA 2