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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter7Financial Analysis

RATIO ANALYSIS

Financial analysis is the process of determining the significant operating and financial characteristics of a firm from accounting data and financial statements. The goal is to determine the efficiency and performance of management, as reflected in the financial records and reports. The analyst measures the firm’s liquidity, profitability, and other indicators to see whether its business is being conducted in a rational and orderly way. If a firm does not achieve the financial norms for its industry or if relationships among data do not seem reasonable, the analyst notes the deviations. The burden of explaining the apparent problems may then be placed upon management.

In this chapter, we will develop ...

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