The Benefits of Understanding Financial Ratios Essay

The Benefits of Understanding Financial Ratios - Essay Example at heart the questions that were considered were the detail dimensions CFAs use to measure liquidity, long-term debt paying ability, and probability and what are the relative importance of specific monetary ratios. While there were sixty-ratios considered, a number of prominent points emerged. In these regards, its noted that a single ratio oftentimes functions to measure more than one aspect of financial health. One shell is that a ratio of days sales measures both liquidity and profitability. In terms of the most most-valuable financial ratio, analysts placed the most emphasis on return on equity after tax. b) condition of dissertation main point The main point thesis of the article is that financial analysis places not bad(p) emphasis on the corporate annual report and the financial ratios that examine it. A further thesis is that financial ratios have a varying degree of importance in terms of a diverseness of financial categories, specific totallyy liquidity, long-term debt paying ability, and profitability. c) Supporting opinions/reasons There is a great body of explore that supports the notion that financial ratios are an integral part of determining a firms financial performance. ... al to measuring a business financial performance and future viability in supplyition they add the DuPont Ratio as a meaning(a) financial ratio for analysis. Financial ratios have also been extend to examine the financial strength of a firm when enlisting an underwriter before an IPO this view was noted by Quantitative Applications in Economics & Finance (2008). Another prominent perspective was right by Kaufman (1995). Kaufman (1995) considered that bank failures are oftentimes linked and anticipated by the key financial ratio of low capital-to-assets. d) Opposing opinions/reasons While there are a number of strong elements supporting these understandings of financial rations, there are also a nu mber of opposing perspectives. One perspective, as proposed by Ming-Yuan, Meng-Feng, et all (2007), argues that instead of financial ratios, behavioural determinants of firms oversees financing policies function as the primary analytic criteria. This study examined behavioural factors of, (1) persistence behavior effectuate, (2) mental account effects, (3) the year of the company, (4) attraction effect, (5) character qualifications of managers and (6) overseas investment effects (Ming-Yuan, Meng-Feng, et all 2007, pg. 183) in attempting to determine financial strength. The study revealed that there were statistically significant correlations between behavioral aspects and firms oversees financing decisions. Even more notable, financial ratios were not influential in these decisions. Another prominent attachment was that advanced by Pantos (2008). Pantos (2008) argues that previous arguments, specifically those of Emm and Gay (2005), that high concentration ratios can demonstrate s ignificant risk implications in over-the-counter derivatives markets are