1) Ratio analysis involves a comparison of the relationships between financial statement accounts so as to analyze the financial position and strength of a firm

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1) Ratio analysis involves a comparison of the relationships between financial statement accounts so as to analyze the financial position and strength of a firm.

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2. Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy­to­use measures of a firm's liquidity position.

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3. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that can be used to assess how effectively the firm is managing its assets in consideration of current and projected operating levels.

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4. The degree to which the managers of a firm attempt to magnify the returns to owners' capital through the use of financial leverage is captured in debt management ratios.

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5. Since ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

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6. Market value ratios provide management with a current assessment of how investors in the market view the firm's past performance and future prospects.

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7. Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time.

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