Wednesday, December 10, 2008

Ratio Analysis Financial Control

Using Ratio Analysis for Financial Control

  • Liquidity ratios show financial managers how readily the firm’s assets can be converted to cash to pay liabilities.
  • Debt ratios show the firm’s ability to pay long-term financial obligations such as bonds.
  • Return ratios demonstrate how much return the firm is generating relative to the value of its book assets.
  • Coverage ratios estimate the ability of the firm to pay the interest expenses on money it has borrowed from creditors
  • Operating ratios demonstrate how efficient the operation of the firm is

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