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chap4notes - UNIVERSITY OF SANTO TOMAS COLLEGE OF COMMERCE...

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UNIVERSITY OF SANTO TOMAS COLLEGE OF COMMERCE AND BUSINESS ADMINISTRATION A.Y. 2008 2009 BASIC FINANCE HOW TO EVALUATE A FIRM’S FINANCIAL PERFORMANCE CS ANDRES Purpose of Financial analysis - Financial analysts use th e information to measure a company’s performance and make projections about and improve its future financial performance - Ratios are used to standardize financial information so that we can make comparisons. Otherwise, it is really difficult to compare the financial statements of two firms of different sizes or even the same firm at different times. (Ratios rather than absolute amount) - The ratios give us a way of making meaningful comparisons of a firm’s financial data at different points in time and with other firms. - Financial analysis tools can help a wide group of individuals for a variety of purposes Financial Ratios We could use ratios to answer the following important questions about a firm’s operations.
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