Answer to Question #53106 in Accounting for Godvictor

Question

Explain five uses of financial ratios

Answer 1

Financial ratios are tools used to:
- assess the relative strength of companies by performing simple calculations on items on income statements, balance sheets and cash flow statements.
- Ratios measure companies operational efficiency, liquidity, stability and profitability,
- Ratios give investors more relevant information than raw financial data.
- Investors and analysts can gain profitable advantages in the stock market by using the widely popular, and arguably indispensable, technique of ratio analysis.
- Ratios make managing the company easier, because they give relevant information about the current situation and show some problems, that are to be fixed.