Question

Which do you think is more useful: horizontal and vertical analysis or ratio analysis?

My answer would have to be Ratio Analysis only because it appears to in composes both Vertical analysis and Horizontal Analysis. Being based on line items, and the use of being able to evaluate various aspects of a company operating and financial performance. Being able to analysis a company’s efficiency, liquidity, profitability and solvency are very important. While Vertical analysis is going to cover the three major categories of accounts (assets, liabilities and equities). While horizontal analysis is fundamental, based on the investing time horizon.

Name and give the formula for two of the profitability ratios. Describe what these ratios can tell you

Return on Equity – How much money the company has generated with the money Shareholders into the company, while providing insight into the fincial health of the company.

                                                Net Income

               ROE =          ________________________

                                    Avg Stockholder’s Equity

Return on assets – The earning generated from the total assets or resources the company has, while providing insight into the fincial health of the company.

                                           Annual Net Income

                ROA=        ______________________

                                    Average Total Assets

Name and give the formula for two of the liquidity ratios. Describe what these ratios can

tell you.

                                Curent Assets

Current Ratio = ___________________

                            Current Liabilities

Used to test a company’s liquidity.

                         Cash + Accounts Receivable

Quick Ratio = _________________________

                                     Current Liabilities

Indicator of a company short term liquidity.

Both can tell you about the company’s ability to pay back its debit / liabilities.

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