FIN 200 Week 2 DQ 1 - 7544

Solution Posted by
3number
Solution Detail
Price: $2.00
  • From: ,
  • Posted on: Wed 11 Apr, 2012
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description

·         You are considering investing in a company. Which financial ratios would you find most useful?

 

          The significance of all financial ratios is vital in determining which company to invest it.  There are, however, certain financial ratios that are more relevant than others.


          In order to determine which ratios are most important, it is important to investigate the company’s market as a whole.  As an example, ratios dealing with inventory and inventory turnover will be more significant in the manufacturing sector.  However, all companies have to deal with the management of their cash.  As such, liquidity ratios (examples: current ratio, quick ration) will be extremely important to determine and calculate.

          As eluded above, the most effective way for investor to determine the relative weight of various financial ratios in regards to evaluating the financial health of a corporation is to first discover the nature of business and significant actions, activities and everyday jobs to carry out the business competently. They should then place these things in order of their significance. Then, the ratios that are linked with each of those actions can be calculated. For example, if the most imperative action of a company is inventory management, then the inventory turnover ratio will be among the most imperative ratio. Similarly, for a manufacturing company, operating ratios will be crucial to know.

          The importance of each ratio is also dependent on the investor that is using the ratio. For example, for an investor who is focused on operations, the operating ratio is the most imperative. For an investor who is more general in focus, the return on investment will probably be the most important.  All in all, the importance of ratios from an investor’s perspective is dependent on the sector as a whole and what the focus of the investor is.


 

Solution Description

·         You are considering investing in a company. Which financial ratios would you find most useful?