What is a ratio analysis? Briefly explain. Referring to the ratio analysis, in which company would you be willing to invest and why?

Procter and gambles financial ratio analysis

A ratio analysis is a quantitative method of analyzing financial performance. It involves computing and comparing various numerical relationships between different items in a company’s financial statements, such as the current ratio or debt-to-equity ratio. This helps to assess how well a company is managing its assets, liabilities and equity structure, as well as other important aspects such as liquidity position and profitability.

Ratios can be used to compare companies within an industry or evaluate the same company over time for changes in its financial performance. A higher number generally implies that a company is performing better than expected or better than its competitors; however, it is important to note that ratios should always be considered in context with other factors when making investment decisions.

When considering which company I would invest my money in based on the results of a ratio analysis, I would look for companies with strong balance sheets that are financially stable and have good fundamentals. For example, I would want to see high current ratios (assets > liabilities), low debt-to-equity ratios (debt < equity), healthy earnings before interest & taxes margins (EBIT) , robust cash flow generation ability, low inventory turnover and reasonable dividend payouts. I also like companies with competitive advantages such as strong brand recognition or patents that may protect them against competition. Additionally, some macroeconomic factors like stock market indices might influence my decision if they are showing signs of growth potentials despite slowing economic growth globally due to Covid-19 pandemic.

In conclusion, the choice of where to invest will depend on individual risk tolerance level and investment goals but by using the techniques available from ratio analysis combined with knowledge about industry trends can help make more informed decisions when it comes to investing your money into any given business enterprise.