Using the sample financial statements, calculate the financial ratios and then interpret those results against historical data and industry benchmarks.

Using the sample financial statements, one can calculate key financial ratios that allow for comparison to industry benchmarks and historical data. For example, a company’s current ratio is calculated by dividing its total current assets by its total current liabilities. This ratio measures the firm’s short-term liquidity and provides an indication of its ability to meet short-term debt obligations. Looking at the same company over several years can help detect trends in liquidity while comparing this number to averages within the industry gives an understanding of how well or poorly the firm is positioned financially compared with other companies in the same sector.

Other ratios such as return on equity (ROE) measure profitability by computing how much money has been earned after taxes divided by shareholders’ equity. A comparison between ROE numbers across different periods helps identify if there have been changes in management’s ability to increase profits; while comparing these figures against industry averages sheds light on which firms are doing better than their competitors at creating value for their investors.

Finally, analyzing these various financial ratios provides valuable insight into a company’s performance over time and relative to other businesses in its sector—allowing investors, managers and analysts alike make more informed decisions about when, where and what kind of investments should be made.