How is ratio analysis used by an investor ?

Hi! Thanks for the question.

The Washington State University website provides a good document about
the uses of ratio analysis for investors.

Here is a list of uses for investors:

- Measuring abilities of firms to meet short term financial needs.
- They can measure assets that can be immediately be convertible to cash
- They can also determine if companies are using their assets effectively.
- Investors can also measure the firm?s ability in collecting from their debtors.
- The rate of company stock turnover (example for retail stores) can
also be measured here.
- Investors are also able to measure how effectively the firm is
managing its assets to generate sales.
- Ratio analysis also enables investors discern how much business
activities are supported by creditors or owners.
- Ratios can also show how much of the assets are financed by debt.
- Ratios can also tell you how much earnings can decline without
causing losses for the firm and create difficulty in meeting interest
cost.
- Investors can also measure a firm?s ability to earn a profit over time.
- The Net Proift Margin ratio enables investors to measure performance
of companies in the same industry.
- Investors can also measure return on company investments.
- Such ratios also enable potential investors to measure the amount
they hope to earn in return.
- They can determine how much they earn on each share they held during
the financial year.

?Ratio Analysis Techniques?
http://cbdd.wsu.edu/kewlcontent/cdoutput/TR505r/page38.htm


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Request for Answer Clarification by jag_328-ga on 14 Mar 2005 21:49 PST

Can I have more information ?

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Clarification of Answer by easterangel-ga on 14 Mar 2005 22:02 PST

Hi again!

In your original question, you were asking "How is ratio analysis used
by an investor?" so here are the ways such ratios are used. Google
Answers Researchers can only answer based on the question at hand.

Anyway, what kind of additional information are you looking for? Maybe
we can use that to find additional resources.

Thanks.