MGMT 3320 Chapter 3: MGMT3320 Chapter 3
7 Feb 2017
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Ratio analysis: way of understanding the significance of the resultant number. Use to determine expectations about firm"s future success may help determine current value of firm"s assets/liabilities/equity. Weigh & evaluate the operating performance of the firm now & in past. Determine relative as opposed to absolute performance. Some financial services produce ratios such as d&b, robert morris, stats canada for comparative purposes. Represent the most commonly used categories & ratios but others can also be constructed. Influence share price performance thus important to equity investors & security analysts. Measure speed/efficiency of turning over assets resulting in cash conversion cycle. Identify times per year inventory is sold, accounts receivable collected, productivity of capital assets in generating sales. Emphasize ability to pay off short-term obligations as they come due. Focus bankers & creditors on ability to generate timely cash flows. Evaluate overall debt position of the firm compared to asset base & earning power.
