UNIT_2_DB_FM

Running head : UNIT_2_DB_FM

Financial Ratios

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UNIT_2_DB_FM

Activity ratios

What do they tell you about a firm

Activity ratios describe the effectiveness of firm 's resource use , thus reflecting on the weaknesses or strengths of the organization 's management (Khan Jain , 2006

Why is it important for a bank to understand these financial ratios

Banks should comprehend activity ratios since they describe resource use effectiveness , thus pointing to areas where improvements are needed . The ratios also inform banks about successful

practices that are worth upholding

Why is it important for an investor to understand these financial ratios

Investors ought to comprehend activity ratios so as to make wise investment decisions , thus shunning underperforming firms in preference for better performing institutions

Solvency ratios

What do they tell you about a firm

Solvency ratios illustrate the capacity of an organization to satisfy immediate obligations , thereby reflecting the firm 's short-term financial circumstances (Robinson et al , 2008

Why is it important for a bank to understand these financial ratios

Banks should comprehend solvency ratios so as to assess their financial situation with regard to meeting immediate obligations , thus planning effectively

Why is it important for an investor to understand these financial ratios

Investors ' understanding of solvency ratios enables them to take appropriate investment choices , thus shielding them from underperforming banks . Investors can therefore invest in performing institutions

Profitability ratios

What do they tell you about a firm

Profitability ratios determine a firm 's earning ability , thus offering projections on...