Question

Financial ratio analysis is a tool that is often used to evaluate the internal strengths and weaknesses of a company. Potential investors and shareholders look closely at a firm's financial ratios and compare it to industry averages. Use the resources from Table 4-10 in your textbook, the video in the module, and your Capstone Courier report to determine the financial ratios (see Table 4-4 in your textbook) of your Capstone company. Post your calculations to as many of the financial ratios that you can find in your Capstone Courier report. Your discussion post should include how your company is doing against your competitors from a financial standpoint. When you post your replies, look closely at your teammates' comments. Are you in sync? If not, you will need to address this in your weekly strategy meetings.

Answer 1

Use accounting ratios to assess business performance. Ratio analysis is a good way to evaluate the financial results if your business in order to guage it's performance. Uses of accounting ratios including allowIng you to compare your business against different standards using the figures on your balance sheet or profit and loss account.

Financial ratios can be broken down into four main categories

1. Profitability or return on investment

2. Leverage

3. Liquidity

4. Operating or efficiency.

Capstone courier should determine the financial ratios for comparison purposes. It is important to keep in mind that financial ratios are time sensitive. Determining which ratios to compute depends on the type of business, the age of business, the point on the business cycle and any specific information sought. The decision is being made on the basis of financial ratios.