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Essay question: Assume this is your first day on the job as the new chief financial...

Essay question: Assume this is your first day on the job as the new chief financial officer of a midsize company. Identify the three key ratios that you would compute first as you begin to try to understand the financial status of the firm. Explain why you selected the three ratios that you did.

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Answer #1

1.return on equity

Return on equity is a very important ratio which will helps to calculate how much return the company gives to its shareholders from the net income. So if there is good return on equity then the company sounds good.

It is calculated by

Net income/ Avg share holders equity

2. Return on Asset

Return on asset is also same here we are calculating this ratio for understand how much the company is profitable or how much profit the company earning comparing to their asset. So it will helps to identify the asset utlisation policy of the company.

This is calculated by

Net income/ Avg total asset

3. Debt ratio

It shows that how much the companies Assets are held via debt. So it will helps to identify the firms debt position of the company.

It is calculated by

Liabilities/ asset

ThankYou...

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