Chapter 9. Financial Ratio Analysis
Explain how financial ratio analysis can be used to help assess the operating performance and financial condition of a company.
Identify the five aspects of operating performance and financial condition that financial ratio analysis can be used to evaluate and their limitations: return on investment, liquidity, profitability, activity, and financial leverage.
Differentiate among the following return‐on‐investment ratios and what they indicate for a company's performance: basic earning power, return on assets, and return on equity.
Explain how the DuPont system is used to break down return ratios into their components to determine which areas are responsible for a firm's performance.
Describe what is meant by liquidity.
Explain the following measures of liquidity: current ratio and quick ratio.
Relate each of the following measures of profitability to the performance of a company: gross profit margin, operating profit margin, and net profit margin.
Explain the following activity ratios to evaluate how effciently a firm is employing its assets: inventory turnover ratio, accounts receivable turnover ratio, total assets turnover ratio, and fixed assets turnover ratio.
Describe what is meant by the financial risk of a firm.
Describe each of the following financial leverage ratios and discuss how each relates to the evaluation of a company's financial risk: debt‐to‐assets ratio, interest coverage ...