Ratio analysis involves calculations that use the data from the financial statements to evaluate the performance of companies in different key areas. How would this information be used by a credit analyst as compared to someone is going to make an investment decision?
Sample Solution
Ratio analysis is a technique used to analyse financial statements. It involves calculating and comparing different metrics, such as profit margins, liquidity ratios and debt ratios. This allows companies to assess their performance over time and better understand the financial health of the organisation. By identifying trends in the ratios, businesses are able to identify potential problems with the business model or areas where improvements can be made. Ratio analysis is also often used by investors when researching potential investments,