w6d2 - Copy - Copy.docx - As your text describes ratio...

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As your text describes, ratio analysis is a common technique in financial analysis. One of your colleagues’ states that a thorough ratio analysis is all that is needed in considering the financial health of a company. Although you agree that ratio analysis is a helpful guide, there may be some potential pitfalls in ratio analysis. A ratio analysis is a calculated analysis of company data retrieved from a company’s financial statements. This analysis is typically used to evaluate multiple aspects of a company and determine progression and/or regression and also comparisons to like industry competition. “The rating process usually begins with a thorough financial ratio analysis. Rating analysts then consider the prospects for the industry and the company being rated within that industry, (e.g., How will competition affect the company? Are the company's primary markets growing?)” (Byrd, Hickman, & McPherson, 2013, p. 5). However, when using this as a guide this should only be a supplementary tool and not primary.
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