How to calculate a company's financial liquidity, solvency, efficiency, profability and market perspective? Thank you.
Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.
Expert Solution
Step 1
By using the financial ratio formulas, the financial liquidity, profitability, market perspective, solvency, and profitability are calculated.
Financial ratios are of different types like liquidity ratio, activity ratio, solvency ratio, profitability ratio, and market ratio. Every ratio has its own significance.
The liquidity ratio indicates the company's ability to repay short-term obligations.
The activity ratio measures the efficiency of assets and how quickly assets are turning into sales.
Solvency ratio measures the leverage, and capital composition of the company.
The profitability ratio measures the efficiency of a company to generate profit.
Market ratio studies the price and market value of the company.
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