Finance 4

Ratio Analysis

Used to assess a firm’s financial condition., It analyzes/monitors performance, and why it happened, Is of interest to shareholders, creditors, and the firm's management, Shareholders focus on current and future risk/return, as they affect share price, Creditors care about short-term liquidity of a firm and its ability to pay interest and principal payments, Management is involved with all financial situations, and attempts to produce financial ratios favorable for owners/creditors.

Trend or time-series analysis (Ratio Analysis)

Used to evaluate a firm’s performance over time

Cross-sectional analysis (Ratio Analysis)

Used to compare different firms at the same point in time

 Benchmarking (Cross-sectional analysis, Ratio Analysis)

The firm’s ratio numbers are compared to those of a key competitor that it wishes to emulate.

Industry comparative analysis (Cross-sectional analysis, Ratio Analysis)

Compare one firm’s financial performance to the industry’s average performance

 Combined Analysis

A combination of time series analysis and cross-sectional analysis