Which do you think is more useful: horizontal and vertical analysis or ratio analysis?

I think that the horizontal and vertical analysis of the financial statements provides valuable information for the users of the financial statements. Once these have been performed I think that it is also just as important to perform the ratio analysis of the financial statements. While the vertical and horizontal analysis gives you a high level view of what is going on throughout the financial statements I feel that the ratio analysis gives you a more in detailed analysis of the sections which issues. If I had to choose between performing the vertical/horizontal analysis and the ratios I would more likely choose the ratios.

5) Name and give the formula for two of the profitability ratios. Describe what these ratios can tell you

Gross Margin Ratio = gross margin/net sales

Compares gross margin to net sales and provides insight into how profitable a company is in the way in which they sell their inventory.

Return on Equity Ratio = Net Income/Shareholders Equity

Measures a companys ability to generate profits for its shareholders.

6) Name and give the formula for two of the liquidity ratios. Describe what these ratios can tell you

Quick Ratio = (Cash + Cash Equivalents + Short Term Investments + Current Receivables) / Current Liabilities

Measures the ability of a company to pay its current liabilities.

Current Ratio = Current Assets/Current Liabilities

Measures a companys ability to pay off short term liabilities with current assets.

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