Question

First, explain what is meant by the term “Financial Analysis.” Then, explain how financial ratios are...

First, explain what is meant by the term “Financial Analysis.”

Then, explain how financial ratios are used in Financial Analysis.

Homework Answers

Answer #1

Financial analysis is the process of analysing the financial information contained in the financial statements. Analysis of the financial statements helps in ascertaining the financial strenght and performance of the entity. Financial analysis is used to analyze whether the entity is solvent, profitable and stable.

Financial ratios help a lot in financing analysis. It is a quantitative analysis of the financial information. It provides a certain number which can tell if the business is in good condition.

For example: Debt to equity ratio tells the ratio between Debts of an entity and the shareholder's equity. A ratio of less than 1 tells us that shareholder's equity if sufficient enough to cover it's debts. While a ratio of more than one says that debt is more than equity, thus, whole of the entity's debts is not covered by the the shareholder's equity.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Briefly explain what is meant by the term "externality" and how it occurs.
Briefly explain what is meant by the term "externality" and how it occurs.
Are part from these (horizontal analysis, vertical analysis, ratios for measuring financial health ) what ratios...
Are part from these (horizontal analysis, vertical analysis, ratios for measuring financial health ) what ratios would you deem important to evaluating any specific financial statements and subsequent organization's financial position?
1. Define and describe ratio analysis. 2. Explain how the liquidity, profitability, leverage, and market ratios...
1. Define and describe ratio analysis. 2. Explain how the liquidity, profitability, leverage, and market ratios are used to analyze and compare financial statements.
define two ratios used in financial analysis
define two ratios used in financial analysis
What is meant by the analysis of expense accounts? Explain how expense account analysis relates to...
What is meant by the analysis of expense accounts? Explain how expense account analysis relates to the tests of controls and substantive tests of transactions that the auditor has already completed for the acquisition and payment cycle.?
During financial analysis, an analyst must compare the computed ratios to industry norms. Explain why industry...
During financial analysis, an analyst must compare the computed ratios to industry norms. Explain why industry ratios are important in financial analysis.
Explain what is meant by the term ‘capitalised costs’
Explain what is meant by the term ‘capitalised costs’
Explain what is meant by the term “allostery” and give two examples explaining how this can...
Explain what is meant by the term “allostery” and give two examples explaining how this can influence regulation of a gene
How many of these ratios are used to evaluate long-term financial stability? - Debt ratio -...
How many of these ratios are used to evaluate long-term financial stability? - Debt ratio - Equity ratio - Capitalisation ratio - Current ratio - Acid test ratio Select one: a. 2 b. 3 c. 4 d. 5
Define what is meant by the term financial derivative and list the three classes of derivatives...
Define what is meant by the term financial derivative and list the three classes of derivatives discussed in class. Provide an example of each type of derivative listed and discuss how the particular derivative works generally.