How well is the organization positioned to meet its short-term obligations?”

Ratio Analysis
Note: Before completing this Discussion, please familiarize yourself with the

Week 6 Discussion Rubric located in the Course Information area of the course navigation menu.

The purpose of financial ratio analysis is to provide information about the financial performance of an organization which goes beyond that which is available from analyzing only one line item at a time. Ratios are generally grouped into four categories: Liquidity; Revenue, Expense, and Profitability; Activity; and Capital Structure.

Liquidity ratios answer the question: “How well is the organization positioned to meet its short-term obligations?”
Revenue, Expense and Profitability ratios answer two questions: (1) “How profitable is an organization?” and (2) “How effective is it in controlling its operating costs and increasing its operating revenues?”
Activity ratios answer the question: “How efficiently is the organization using its assets to produce revenues?”
Capital Structure ratios answer two questions: (1) “How are the organization’s assets financed?”; and (2) “How able is the organization to take on new debt?”

 

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