Financial statements contain a lot of information. The numbers could be very large, but does large always mean good? As an example, suppose a company that has operating revenues of one billion dollars has only $100,000 in it's bank account compared to let's say a company that has operating revenues of one million dollars that has the same $100,000 in the bank. Do you think the two companies are equally financially positioned? Looking at only one piece of information is not enough. To see if the company is a solid investment, we can use some analytical tools.

Explain how to calculate the following ratios and discuss what each ratio will tell the financial statement reader.

Liquidity: Current Ratio

Profitability: Earnings per Share