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Financial Statement Analysis

Financial Statement Analysis - accounting period interact...

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Financial Statement Analysis 00:01 Ratios: Liquidity Ratios  measure a firm’s ability to meet cash needs as they arise.  Activity Ratios  measure the liquidity of specific assets and the efficiency of managing  assets. Leverage Ratios  measure the extent of a firm’s financing with debt relative to equity  and its ability to cover interest and other fixed charges.  Profitability Ratios  measure the overall performance of a firm and its efficiency in  managing assets, liabilities, and equity.  Market Ratios  measure returns to stockholders and the value the marketplace puts on  a company’s stock.  Du Pont System Helps the analyst see how the firm’s decisions and activities over the course of an 
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Unformatted text preview: accounting period interact to produce an overall return to the firm’s shareholders. The ratios which are looked at include the return on investment (profit generated from the overall investment in assets) which is a product of the net profit margin (profit generated from sales) and the total asset turnover (the firm’s ability to produce sales from its assets). The return on equity (overall returns to shareholders, the firm’s owners) is derived from the product of return on investment and financial leverage (proportion of debt in the capital structure)....
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