financial ratios Relationships determined from a firm’s financial information and used for comparison purposes. Financial ratios can be different within the industries because of the way they function. It can and does differ even between companies in the same industry.Financial ratios are important to estimate a firm’s financial position and functioning that can disclose where the firm wil need additional investigation. Nevertheless, when examine the proficiency of a firm, we should consider that various industries may have distinct regulations. If we make a comparison of ratios between small grocery store and car dealer store, the numbers will be very distinct. The inventory turnover, which measures the relative size of inventories will be higher in a grocery store because they sell their inventory faster than car dealers. Therefore, it will help lower the days of inventory within the grocery store. Dealer store’s operating cycle, or the time it takes to sell products and collect for them, will be longer than one of the grocery store. In the dealer store, the inventory last more long on hand because of the result in the higher operating cycle.
Supermarkets I think would have high liquidity and profitability ratio because they do make enough money to stay in business for a long time and they make a lot of profit in sales. Everyone needs food and supermarkets are always going to get sales. Some supermarkets are even on the New York Stock Exchange and are doing really well like WholeFoods it closed at $52.25 today which I thought was great, I didn’t know their stock was that high, so I am pretty sure their shareholders are making a profit on their investment.
2. We can use financial ratios in different way. These ratios help the financial statements to be more understanding. The ratios are efficient to make a comparison between the firms that are not in the same extent. They help to find the important information, and we do not need to know all the financial information. They help us notice the accomplishement of organization in a distinct period, and it is useful to understand the trends.