Week 6 discussion 1 financial ratios

Referencing this week’s readings and lecture, what are the limitations of financial ratios? Classify your answer into at least the following categories: liquidity ratios, activity ratios, leverage ratios, and profitability ratios.  

Connect with a professional writer in 5 simple steps

Please provide as many details about your writing struggle as possible

Academic level of your paper

Type of Paper

When is it due?

How many pages is this assigment?

Week Six Lecture

     Analyzing Financial Reports 

After review of financial statements, managers can use basic financial ratio analysis tools to establish trends within the financial results of a company through comparing the result of different periods in the accounting period. Different stakeholders will need various financial ratios in different ways (Dobosz, 2013). Executives and managers, creditors, vendors and suppliers, financial analysts, financial reporters, and competitors all need financial ratios for varying purposes. Despite their usefulness, financial ratios are limited in their purpose by various factors such as structure of a company, inflation, seasonality, and accounting methods. There are various types of financial ratios, namely liquidity ratios, activity ratios, leverage ratios, and profitability ratios, all of which serve different purposes.  

Liquidity ratios are critical for companies to measure the quality of current assets. They help determine whether a company is liquid enough to cover up its current liabilities. Liquidity ratios include current ratio, the current cash debt coverage ratio, and acid test ratio. Activity ratios, on the other hand, establish how a company makes use of its resources through comparison of certain activities. They are also known as turnover ratios and help determine a company’s effectiveness in managing its liabilities and assets. Activity ratios include accounts receivable turnover ratio, inventory turnover ratio, total asset turnover ratio, and accounts payable turnover ratio (Dobosz, 2013). Leverage ratios establish the level of debt owed to creditors by a company and whether such a company is in a position to pay its long-term liabilities. The term leverage refers to the extent at which an organization borrows money. Leverage ratios include debt to equity ratio, the debt to capital ratio, the interest coverage ratio, cash flow coverage ratio, and the cash debt coverage ratio. Lastly, the profitability ratios are used by a company to establish whether it is operating at a profitable level and measure the success of the company in the industry. Profitability ratios include price/earnings ratio, cash flow margin, the net profit ratio, the dividend yield ratio, return on equity ratio, and return on asset ratio.  

In order for the ratios to be useful to managers and the whole of the company, they have to be compared to other similar companies in the industry. This is the only way the ratios can be useful in helping managers make decisions that boost a company’s success and competitiveness in its scope of operation. Internal reporting, which does not have to meet the GAAP standards, helps managers make sound decisions to improve a company’s performance. Budgets versus actual reports and aging schedules for accounts receivable help us understand how internal reports can be used in making decisions which shape the future of an organization.  

Forbes School of Business Faculty 


Dobosz, J. (2013). Ten ratios to make you money in stocks. Forbes. Retrieved from http://www.forbes.com/sites/johndobosz/2013/09/25/10-ratios-to-make-you-money-in-stocks/  


Epstein, L. (2014). Financial decision making: An introduction to financial reports [Electronic version]. Retrieved from https://content.ashford.edu/ 

Recommended Resources 


Investopedia Staff. (n.d.). Ratio analysis: Using financial ratios (Links to an external site.)Links to an external site.. Investopedia. Retrieved from http://www.investopedia.com/university/ratios/ratios1.asp 


NetMBA, Business Knowledge Center. (2010). Financial ratios (Links to an external site.)Links to an external site.. Retrieved from http://www.netmba.com/finance/financial/ratios/

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our Guarantees

At 111papers.com, we value all our customers, and for that, always strive to ensure that we deliver the best top-quality content that we can. All the processes, from writing, formatting, editing, and submission is 100% original and detail-oriented. With us, you are, therefore, always guaranteed quality work by certified and experienced writing professionals. We take pride in the university homework help services that we provide our customers.

Money-Back Guarantee

As the best homework help service in the world, 111 Papers ensures that all customers are completely satisfied with the finished product before disbursing payment. You are not obligated to pay for the final product if you aren’t 100% satisfied with the paper. We also provide a money-back guarantee if you don’t feel that your paper was written to your satisfaction. This guarantee is totally transparent and follows all the terms and conditions set by the company.

Read more

Zero-Plagiarism Guarantee

All products that we deliver are guaranteed to be 100% original. We check for unoriginality on all orders delivered by our writers using the most advanced anti-plagiarism programs in the market. We, therefore, guarantee that all products that we submit to you are 100% original. We have a zero-tolerance policy for copied content. Thanks to our strict no plagiarized work rule, you can submit your homework to your professor without worrying.

Read more

Free-Revision Policy

TThis is one of the most cherished courtesy services that we provide to help ensure that our customers are completely satisfied with our finished products. Delivering the best final product to our customers takes multiple inputs. 111papers.com prides itself on delivering the best university homework help services in the writing industry. And, in part, our free revision policy is how we do it. What’s more, all our revisions are 100% free without any strings attached.

Read more

Privacy Policy

Client privacy is important to use. We know and understand just how important customers value their privacy and always want to safeguard their personal information. Thus, all the information that you share with us will always remain in safe custody. We will never disclose your personal information to any third party or sell your details to anyone. 111 Papers uses the most sophisticated, top-of-the-line security programs to ensure that our customers’ information is safe and secured.

Read more

Fair-Cooperation Guarantee

Placing your order with us means that you agree with the homework help service we provide. We, in turn, will endear to ensure that we do everything we can to deliver the most comprehensive finished product as per your requirements. We will also count on your cooperation to help us deliver on this mandate. Yes, we also need you to ensure that you have the highest-quality paper.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages