Reference no: EM132542781

Ratio analysis is important in that it allows companies to evaluate their financial condition in terms of liquidity, profitably, and overall efficiency (Bloomenthal, 2020). Examples of 3 categories of ratios are liquidity ratios, solvency ratios, and profitability ratios (Edmonds, Edmonds, Edmonds, Olds, 2020). An example of a ratio that is used in determining liquidity is working capital. An example of a ratio used in determining solvency is the debt-to-assets ratio. And an example of a ratio used in determining profitability is the net margin. Liquidity ratios utilize a company's current assets and liabilities to measure their ability to pay off short term debts. Solvency ratios utilize a company's assets, equity, and earnings to evaluate the company's ability to pay off long term debt and other outstanding financial obligations (Bloomenthal, 2020). Profitability ratios utilize revenues and expenses to determine how well a company can generate profits from its operations. It's important to understand and utilize these ratios in ways that will ensure financial success in business.

Question 1: Understanding ratios will allow companies to overcome failures, make better financial decisions, and perform proper planning to ensure overall success. What are some other examples that may be included?