This
** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up**This preview shows
pages
1–3. Sign up
to
view the full content.*

How do you standardize balance sheets and income statements?
We use the common-size balance sheets (Compute all accounts as a
percent of total assets)and common-size income statements (Compute all
line items as a percent of sales)
Why is standardization useful?
Standardized statements make it easier to compare financial information,
particularly as the company grows.They are also useful for comparing
companies of different sizes, particularly within the same industry.
What are the major categories of financial ratios?
Short-term solvency or liquidity ratios
Long-term solvency, or financial leverage, ratios
Asset management or turnover ratios
Profitability ratios
Market value ratios

This
** preview**
has intentionally

How do you compute the ratios within each category?
Every ratio has its own formulation ,we just use these formulation to
compute these ratio
Liquid ratio
Current Ratio = CA / CL
Quick Ratio = (CA – Inventory) / CL
Cash Ratio = Cash / CL
What are some of the problems associated with financial statement
analysis?
There is no underlying theory, so there is no way to know which ratios

This is the end of the preview. Sign up
to
access the rest of the document.

Ask a homework question
- tutors are online