When it comes to financial analysis

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University of Phoenix *

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RES/320

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Finance

Date

Jan 9, 2024

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docx

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1

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When it comes to financial analysis, there are a few key ratios that can be used by both internal and external users to make informed decisions. For example, the current ratio helps assess a company's short-term liquidity, while the debt-to-equity ratio shows the proportion of debt-to-equity financing. These ratios can provide insights into a company's financial health and help users make decisions about investments, lending, and more. The current ratio is calculated by dividing a company's current assets by its current liabilities. It's a simple way to assess a company's ability to cover its short-term obligations with its short-term assets. A higher current ratio generally indicates better liquidity and financial health. Financial ratios are definitely an important tool, but they shouldn't be the sole basis for making decisions. While ratios provide valuable insights into a company's financial health, they need to be considered alongside other factors such as industry trends, market conditions, competitive analysis, and qualitative information. Internal users, like company management, can combine financial ratios with their in-depth knowledge of the company's operations to make strategic decisions. External users, such as investors or lenders, may use ratios as part of their evaluation process, but they also consider other information like company reputation, market potential, and future prospects. So, financial ratios are an essential piece of the puzzle, but they're not the whole picture. Ren, S. (2022). Optimization of enterprise financial management and decision-making systems based on big data. Journal of Mathematics , 2022 , 1-11. Respond to the following in a minimum of 175 words: List 3 ratios used for analysis and describe how each can be used in decision-making by internal or external users. Are financial ratios enough to make internal or external decisions related to a company? State why.
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