Limitations-issues with ratio analysis

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Reference no: EM133116882

Rush Creek Company

Ratio Analysis

Current Year = CY
Last Year = LY

CY LY

Calculations

Liquidity Ratios
Current Ratio CA / CL
Quick Ratio (CA - Inv. ) / CL

Asset Management Ratios
Inventory Turnover COGS / Inv.
Days Sales Outstanding (DSO) A/R / Avg. Daily Sales
Total Asset Turnover Sales / TA

Debt Management Ratios
Debt to Equity Ratio Debt / Equity
Debt Ratio Debt / Total Assets
Times Interest Earned EBIT / Interst Exp.
A/P Days A/P / Avg. Daily COGS

Profitability Ratios
Profit Margin Net Income / Sales
Return on Assets Net Income / TA
Return on Equity Net Income / Equity
Return on Invested Capital EBIT (1-TR) / Invested Capital
(use total liabs & equity for invested capital)

Market / Valuation Ratios
Earnings Per Share (EPS) Net Income / # Shares
Price / Earnings Ratio Share Price / EPS
Market Capitalization # Shares * Share Price
Total Shareholder Return N/A (Dividends + SPA) / Original Investment
(spa = share price appreciation)

1) What two things should always be done in conjuction with any ratio analysis?

2) What are some limitations / issues with ratio analysis?

Reference no: EM133116882

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