Question

A student once noted, “This ratio stuff is great. It’s unbelievable how ratios can tell the complete story behind the problems of a business.” Comment on the student’s observation.

Answer 1

As we know ratios tell the complete story behind the problems of a business as there are different types of ratio which exhibits different problem of a business like liquidity ratio is the ratio which shows the company's financial ability to pay off its short term liabilities. This shows company's financial ability. There is also many ratios like debt equity ratio, solvency ratio, Interest coverage ratios etc which are also representative of business ability and it's position.

With the help of ratio, investors find out whether it is right or not to invest in a company. One can also find out company's ability and it's position by which they evaluate company's financial position in market . So, it is true that with the help of ratios we can find out company's history and it's problems also as with ratios result we can also take such actions or measure to recover the lack goals of the business.