Financial Analysis For A Company 's Performance

Decent Essays

Charles_T._Horngren (2005) stated that “people perform financial analysis for different reasons, Supplier want to see if a customer can afford a price hike, Customers want to know if a company will still be around in a year to honor a warranty, Managers, creditors, investors, and the CEO’s all have their reasons for reading the statements, regardless of your interest in the company. Financial statement analysis involves using financial data to assess some aspect of a company’s performance” Horngren added ”Although many analysis methods exist, the cornerstone of financial statement analysis is the use of ratios”
Financial ratios analysis can measure the firm liquidity, solvency, profitability and market prospect
Eljelly (2004) elucidate, that” efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability”.
Liquidity ratios measure the company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its current assets to cash to meet its short-term obligations? Therefore, Liquidity ratios are very significant to investors and creditors since it helps them to identify how easily company will be able to pay off

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