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RSM220H1 (54)
Xin Baohua (17)

lec 5 - Ratio Analysis - Worksheet.docx
lec 5 - Ratio Analysis - Worksheet.docx

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University of Toronto St. George
Rotman Commerce
Xin Baohua

RSM22014S Financial Accounting TOPIC 5 WORKSHEET FINANCIAL ANALYSIS TECHNIQUES RATIO ANALYSISLEARNING GOALS LGAfter this unit you should be able to1Explain the usefulness and limitations of the tools and techniques used in financial analysis 2Perform basic horizontal and vertical commonsize ratio analyses and interpret the results3Calculate and interpret activity liquidity solvency profitability and valuation ratios 4Evaluate the organization using ratio analysis LG1 EXPLAIN THE USEFULNESS AND LIMITATIONS OF THE TOOLS AND TECHNIQUES USED IN FINANCIAL ANALYSISKEY POINTS TO KNOW1Financial analysis is ultimately contextual and purposedriven In other words there is always a reason why you are performing the analysis You need to be clear about the objective of the analysis 2The tools and techniques that you use will depend on your purpose As we discussed earlier analyzing the company as an investment opportunity which generally focuses on indicators of profitability of growth is often different from analyzing the company from the perspective of a credit lend or not decision which generally focuses on indicators of risk liquidity and solvency 3Financial analysis will seldom provide an answer to your objective or starting question eg invest or not lend or not The usefulness of financial analysis is to provide valuable insights and additional questions to ask in arriving at a particular decision Each individual ratio is a basic indicator but it does not by itself provide an explanation of why something happened To get the most value out of financial analysis you need to understand how these ratios
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