Chapter 7. Ratio Analysis

In earlier chapters, you read about different indicators of a company’s financial condition. Values such as current assets, inventory levels, sales, and accounts receivable all help you understand how much money a company has, how much it owes, and how profitable it is.

These numbers can be useful if you know the company fairly well. For example, assume that you work for a company that has $2 million worth of materials in its finished goods inventory. You probably know whether that’s an acceptable figure, whether it’s so low that ...

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