Financial Ratio Analysis And Forecasting
Financial ratio analysis is an important tool that businesses use to evaluate their performance and to help determine how to best manage their resources. Businesses use this analysis to safeguard their financial health and to ensure that they provide reasonable returns to shareholders. Financial ratios are tools that help companies, investors, and other stakeholders analyze the relationships between different pieces of financial information found on a company’s financial statements. Financial ratios are used to assess four dimensions of a company’s financial situation: profitability, asset management, debt burden, and liquidity.
Financial forecasts are future predictions of a company’s financial performance. They are used by start-up companies as well as established firms with operating histories. Companies forecast their performance as reflected in their expected future financial statements. The most critical forecast with respect to a company’s survivability is its expected cash flow over the periods forecasted.