The Value Of Financial Ratio Analysis - 1616 Words

When the economy expands, most industries and companies benefit and grow with it and the reverse is true, that is why it is important for analysts or even individual investors to keep an eye on the economy to determine when it is going to be beneficial for them to invest their money. The economic environment indicators assist these investors in determining the state of the economy. In this paper, I will describe the methods used to assess the macroeconomic environment, discuss the value of financial ratio analysis in the context of common stock investing and compare intrinsic value and market price. Macroeconomic environment Unlike their counterparts during the great depression, financial policymakers today have enormous statistics at†¦show more content†¦Employment indicators The unemployment rate measures the rate at which the economy is operating at full capacity. It also has its roots embedded in the great depression when the rate reached about 25% (rbcpa.com). The unemployment rate is defined as the percentage of unemployed workers in the entire labor force (Bodie, et al, 2011). When people are unemployed the economy loses their contribution in terms of goods and services. The increase in the percentage of unemployed indicates the extent of economic hardship faced by the nation, therefore it is important for policymakers to know the number of unemployed workers in an economy in order to make better decisions in regards to the growth of the economy. Government fiscal and monetary policy Fiscal policy-is the ability of the federal government to increase and decrease its spending, if government spending is zero, there will limited economic growth (Mitchell, 2005). Current government borrowing shifts the burden to future generations to repay debt. An example of how this policy has been used in the past to improve the economy is when the Federal Reserve System lowered its discount rate and in early 2008 Congress passed the Economic Stimulus Act of 2008 (govtrack.us). The legislation gave taxpayers a tax rebate in the form of a check up to $600 for single filers, $1200 for married couples filing jointly (cnn.com). The hope was that consumers would take these checks and spend them to help keep the economy movingShow MoreRelatedRatio and Financial Ratio Analyisis1712 Words   |  7 PagesRatio and Financial Statements Analysis Kimberly Y. Gruber University of Maryland University College Dr. Sunando Sengupta 07/25/2013 Turnitin Score: 23% Executive Summary The purpose of this paper is to examine ratio and financial statement analysis. Such analysis is a useful tool for managers and stakeholders to evaluate a company’s financial health in order to identify opportunities for growth and areas of weakness so as to institute corrective measures.   Financial statements are usedRead MoreTools Used in Financial Management625 Words   |  3 PagesThere are wide range of tools used in such as, cost of capital, financial leverage, capital budgeting appraisal methods, ABC analysis, ratio analysis and cash flow statements. (a) Cost of capital Cost of capital is an important element in investment decision or basically in business. It is used to measure the value of investment proposal provided by investment concern. It is used as discount rate in defining the present value of future cash flow which is associated with capital projects. 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It provides information about the financial performance, position as at a given date, changes in financial position, etc., that are useful for economic decision. Some of the information content may include the statement of an entity’s assets (non-current and current), liabilities (short and long time), ownership structure, and statement of income, expenditureRead MoreManagerial Accounting. Qualcomm Incorporated And Broadcom1157 Words   |  5 Pagesthis paper is to compare the financial position of the two companies by using ratio analysis of each company’s financial statements for year ended 2016. Consequently, various financial ratios will be evaluated including: profitability ratios, liquidity ratios, market value ratios, efficiency ratios and solvency ratio. Finally, the paper will evaluate the ratios and identify the best performing compan y between Qualcomm and Broadcom. Financial ratio analysis The financial statements of an organizationRead MoreThe Three Methods of Analysis1006 Words   |  5 PagesRunning Head: Analysis Methods October 4, 2010 The Three Methods of Analysis The process of restating and summarizing data by establishing ratios and trends is known as financial analysis. The analysis is carried on a company s financial as well as income statement. The main objective behind carrying out a financial analysis of a company is to know its current financial position and its returns compared to risks. Financial analysis also helps in future forecasting. Financial analysis has threeRead MoreAccounting Information and Predicting Financial Performance1049 Words   |  5 PagesAccounting Information and Predicting Financial Performance: Accounting information can be useful in order to help predict future performance in the short and long term. It is important to note however that accounting information including accounting ratios show a company’s performance at a period in time. It is historical data. Trends can be identified by comparing data in sequential periods and future forecasts can be determined using historical data. There is no evidence or proof however, thatRead MoreThe Income Statement1199 Words   |  5 PagesLosses (P L) Statement is labelled as Net Income, but if it’s negative, it’s a Net Loss. Balance Sheet or Statement of Financial Position (SOFIP) The balance sheet is also referred to as Statement of Financial Position. The balance sheet reports a company’s assets, liabilities and stockholders’ equity as of a specific date such as January 31st 2016, June 31st 2016 etc. The financial analyst or accountant cost principle and the monetary unit assumption will limit the assets reported on the balance sheet