Management and Organizational Studies 2310A/B Chapter Notes - Chapter 3: Inventory Turnover, Financial Statement, Asset Turnover

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Bielman

Document Summary

Analysis of financial statements is based on the knowledge and use of ratios or relative values. Ratio analysis involves the methods of calculating and interpreting financial ratios to assess the firms performance. Anticipate reaction of potential creditors and investors to a request for funds. Management should be the most interested party: not only have to worry about the financial situation but also critically interested in what these other interest groups think about them. Both present and prospective shareholders are interested in the firm"s current and future level of risk and return. Firm"s current and prospective creditors are primarily interested in the liquidity of the company, current amount of debt, and the firm"s ability to make interest and principle payments. Four categories: liquidity ratios (measure risk, activity ratios (measure risk, leverage ratios (measure risk, profitability ratios (measure return) Liquidity: the firm"s ability to satisfy its short-term obligations as they come due: solvency of the firms overall financial position.