14.2 Financial Ratios

Our first set of financial analysis tools looked directly at individual accounts on the financial statements. We now add another set of financial tools—ratios—that we can employ to analyze a company’s performance or to compare it with the performance of competitors. Financial ratios are relationships between different accounts from financial statements—usually the income statement and the balance sheet—that serve as performance indicators. We can look at a company’s specific performance areas by selecting key pieces of information from the financial statements and by analyzing this information at a point in time or over ...

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