MT217 M2 Financial Ratios

Financial statement analysis is the process of analyzing a company's financial statements to make better economic decisions. The process for financial statement analysis includes specific techniques for evaluating risks, performance, and future prospects of an organization. Directions This Assessment is separated into four parts. In Part 1 of this Assessment, you will begin by researching and summarizing four of the benefits of financial analysis and indicating which is the most significant to you. In Part 2 of this Assessment, you will define the ratios listed. In Part 3 of this Assessment, you will classify, calculate, and explain the significance of Liquidity, Profitability, and Market Value financial ratios, and provide a year to year comparison of assessed financial trends. In Part 4 of this Assessment, you will compose an analytical essay in a minimum of 350 words reporting the one financial measurement trend you find to be most significant and actions necessary to improve results. Use this Word template provided to complete your Assessment. Questions Part 1. Locate and read the following article located from the Library: Faello, J. (2015). Understanding the limitations of financial ratios. Academy of Accounting & Financial Studies Journal, 19(3), 75–85. Refer to pages 75 and 76 of Faello’s (2015) work. In four separate paragraphs (one for each question), summarize four of the benefits of financial analysis mentioned in the journal article. In one paragraph, describe which one of the four benefits you consider to be most significant. Financial ratios help companies identify and clarify issues with finances using financial statements. When evaluating a company, financial ratios help for benchmarking performance strengths and weaknesses. These strengths and weaknesses are usually identified through company’s operations, liquidity, debt position, and profitability. Financial ratios have also been used to predict specific stock returns through performance checks. Financial ratios help lenders (financial institutions) develop loan contracts for borrowing companies. Lenders will set limits for the borrowing company to ensure security in the loan. For example, a 2:1 current ratio limit ensures that the current assets of the borrower always outweigh