Financial analysts use liquidity, profitability, and leverage ratios to analyze the financial health of a business.
Please respond to the following:
- From your study and personal experience, describe the use of these ratios in determining a company’s financial health.
- Be sure to respond to at least one of your classmates’ posts
Classmate: Rebecca’s post
Liquidity ratios measure a company’s ability to turn assets into cash to pay any debt it has incurred. The profitability ratio measures a company’s expenses vs revenue to determine the income loss or profit during a specific month or year. The leverage ratio is a formula using assets, debt, and equity to determine a company’s ability to pay the long-term debt. Everybody who has any debt, whether you are an individual or own a company in one way or another analyzes these ratios every month to determine the ability to pay bills and plan how long it will take to pay a car, house, equipment, any assets you have a loan through a financial company.