Write a 4-5 page paper discussing the use of ratios in analyzing financial statements.
Write a 4-5 page paper discussing the use of ratios in analyzing financial statements.
What are the benefits of using the ratios discussed in your text when analyzing the balance sheet, income statement, and cash flow statement of an organization?
If you had to choose two key ratios to analyze a company in your chosen industry, which two would best serve your purposes, and why?
Determine which two specific ratios will give you the most important information for your analysis, and create a heading in your paper for each ratio.
Use specific ratios, not ratio categories. For example, explain the inventory turnover ratio, not “asset management ratios.”
Identify which statement provided you with the numbers for each ratio and explain how the ratio was calculated (e.g. “divide the cost of goods sold, found on the income statement by the inventory, found on the balance sheet”).
For each ratio, discuss what you would hope to learn about a company based on these ratios.
Look for industry averages of the two ratios you would use in your chosen industry and discuss reasons for possible variances in the ratio that one might find among companies in the same industry.
What are the dangers of over analyzing using ratio analysis?
What information is important to consider in making an assessment of the financial health of a company in addition to the information gleaned from ratios?
Please use and cite at least three sources, one of which may be the textbook, using correct APA format. This paper should be written exclusively in the third person. Grading rubric found in Course Materials folder of Blackboard.
A couple quick reminders for your paper due Thursday:
1. Financial definitions are not common knowledge. If you are defining a term it is appropriate to cite your source rather than just explain what it means without one.
2. Numbers are relative to industry, so beware of making sweeping generalizations. For example, an efficiency ratio in banking may need to be at 50% to be deemed appropriate whereas another industry 70% might be favorable. Keep any ratio calculations or statements specific to your industry and cite them appropriately.
3. This paper should be specific to your industry, not just a general paper about ratios in broad terms.
Answer preview to write a 4-5 page paper discussing the use of ratios in analyzing financial statements.
APA
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