Potential Issues in Ratio Analysis
As your text describes, ratio analysis is a common technique in financial analysis. One of your colleagues states that a thorough ratio analysis is all that is needed in considering the financial health of a company.
Although you agree that ratio analysis is a helpful guide, there may be some potential pitfalls in ratio analysis.
Discuss at least three potential issues in utilizing ratio analysis that you would share with your colleague.
In addition, calculate a liquidity, profitability, and efficiency ratio from your Week Six company to demonstrate your observations.
Develop a 200 - 300 word explanation supporting your findings.
Reading
Chapter 9 : Capital Structure: Right-Hand-Side Decisions and the Value of the Firm.
Chapter 10 : Dividend Policy: Distributions to Shareholders.
Chapter 11 : Financial Analysis: Evaluation of Corporate Performance.