It is important to know a company’s financial data in absolute terms, but it may be even more important to examine those data on a relative basis compared with (1) the company’s past years of performance, (2) specific individual competitors, (3) an industry average, and (4) aspirations of the firm’s management team. It is critical that the firm identifies its financial strengths and weakness. The strengths must be understood if they are to be used to proper advantage, and the weaknesses must be recognized if corrective actions are to be taken.

For example, how profitable is the company? Are inventories adequate to support the projected level of sales? Does the firm have too heavy an investment in accounts ...

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