Ratio analysisâ€¯compares the line-item data in a firm’sâ€¯financial statements, which will reveal many understandings regarding liquidity, profitability, operational efficiency, and solvency.â€¯Moreover, ratio analysisâ€¯can be used to look at trends for one or more firms within the same industry or sector. Ratio analysis compares line-item data.
Respond to the following in a minimum of 175 words:
- List five major categories of ratios and explain how they could be used to help a firm.
- What are the most important liquidity ratios and why?