Financial Ratios and Profit Analysis Methods

1005 Words Jan 22nd, 2018 5 Pages
Provide support for your rationale.
One ratio that is easy to fixate on is the PEG ratio, or profit earnings/growth ratio. Per Yahoo Finance, that metric currently sits at 1.51 for the next five years expected and anything between 1 and 2 is generally considered to be decent to good depending on the industry.
The rationale behind this ratio being chosen is that a firm must be growing and expanding to be viable long-term. Just showing a profit is not good enough because a firm can be retracting yet showing a profit at the same time. For example, if a retail outlet is closing stores, that does not mean they would post a loss but it's far from good if the number of open stores is going down because that would almost certainly mean that revenue is also going down unless the firm is expanding greatly its online offerings. One of the few examples where such a shift would be expected and normal given the current economic climate would be firms like BlockBuster who are clearly shifting from brick and mortar stores to online stores and/or digital offerings in general. HYPERLINK "" HYPERLINK "" 2.Speculate on…