Uses & Limitations of Ratio Analysis

8 a mix of good and bad ratios makes determining net

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Unformatted text preview: ng vs. buying, LIFO/FIFO 7. It is hard to generalize. High liquidity is good and bad (too much cash). 8. A mix of good and bad ratios makes determining net effects difficult Problems With ROE: (1) It does not consider risk (2) amount of invested capital (3) suppresses good investments in lesser ROEs EVA = Net income – (equity capital x return to equity capital) Looking Beyond the Numbers: From the American Association of Individual Investors (AAII) (1) Are revenues tied to one customer (2) revenues tied to one key product (3) reliance on one supplier (4) % of business overseas (5) competition (6) future prospects (7) legal/regulatory environment...
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