Q1 - Define:
1- Ratio Analysis.
2- Time-Series Analysis.
3- Cross-Sectional Analysis.
4- Benchmarking.
5- Liquidity.
6- Activity Ratios.
7- Financial Leverage.
8- Market Ratios.
Q2 – With regard to financial ratio analysis, how do the viewpoints held by the firm’s
present and prospective shareholders, creditors, and management differ?
Current and prospective shareholders place primary emphasis on the firm's current and
future level of risk and return as measures of profitability, while creditors are more concerned
with short-term liquidity measures of debt. Stockholders are, therefore, most interested in income
statement measures, and creditors are most concerned with balance sheet measures. Management
is concerned with all ratio measures, since they recognize that stockholders and creditors must
see good ratios in order to keep the stock price up and raise new funds.
Q3 – What are the limitations of using Ratio Analysis?
1- Ratio analysis only directs attention to potential areas of concern.
2- To assess the overall performance of an organization; a group of ratios should be used.
3- The ratios being compared should be calculated using financial statements dated at the
same point in time during the year.
4- The use of audited financial statement is preferred.
5- The financial data being compared should have been developed in the same way.
6- Inflation should be taken into account when comparing ratios.