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through this process, I have outlined a step-by-step instruction on how to utilize accounting ratios for company analysis: Step 1 : Gather Financial Statements Obtain
through this process, I have outlined a step-by-step instruction on how to utilize accounting ratios for company analysis: Step 1 : Gather Financial Statements Obtain the company's financial statements, induding the balance sheet, income statement, and cash flow statement. These documents provide a comprehensive overview of the company's financial activities. Step 2: Calculate Kev Accounting Fatios Calculate various accounting ratios that are relevant to the analysis you want to perform. Some common ratios include: 1. Liquidity Rutios - Current Ratio: Current Assets / Current Labilities - Quick Ratio: (Current Assets - Imventory)/ Current Labilities 2. Profitability Ratios - Gross Profit Margin: (Gross Profit// Revenue) * 100 - Net Protit Margin: (Net income// Revenue) * 100 3. Elficiency Ratios - Inventary Turnover Ratioz Cost of Goods Sold / Average Imventory - Accounts Receivable Turnover: Net Credit Sales/Average Accounts Receivable 4. Solvency Ratios - Debt-to-Equity Ratio: Total Debt / Total Equity - Interest Coverage Ratio: Earnings Before interest and Taxes (EBIT) / Interest Expense Step 3: interpret the Ravios Analyze the calculated ravios to gain meaninglul insights into the company's tinancial performance. Compare the ratios with industry benchmarks, historical data, or competitors to assess the company's strengths and weaknesses. (20n) Step 4: Draw Conclusions and Make Recommendations Based on your analysh, draw conclusions about the company's financial health and performance. Identity areas of improvement or potential risks. Finally. make recommendations for management or stakeholders, supporting them with your findings (30s) Step 5 : Prepare a Comprehensive Report Comple vour analysis, conclusions, and recommendations into a wellstructured report. Use charts, graphs, and tables where necessary to present the information clearh. Ensure that your report is concise, coherent, and backed by accurate calculations
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