The Finance Director has asked you, the accountant, to explain the ratio analysis and the understanding the difference between liquidity, solvency and profitability analysis, how would you communicate your response to this question?

Include in your response a discussion of the basic objective of observing trends in data and ratios. Suggest some standards of comparison.

In addition, the Finance Director has also asked the following questions. Explain which ratio you would apply for the following questions:

1. How quickly is our company able to collect its receivables?
2. How quickly is our company able to sell its inventory?
3. Will our company be able to make interest payments as they become due?