COMM 203 Lecture Notes - Lecture 3: Quick Ratio, Asset Turnover, Collet
Document Summary
The two companies" financial statement are difficult to compare because of the difference in size. To make comparisons, we try to standardize the statements. Common-base-year comparison- a standardized financial statement presenting all items relative to a certain base year amount. Calculated by dividing each item by total assets for that year. To compare companies of different sizes we can calculate and compare financial ratios. Financial ratios relationship determined from firm"s financial information and used for comparison purposes. Using ratios eliminate the size problem since the size effectively divides out. Determined by dividing one financial statement number" to another financial statement number". Typical information sources are income statement and balance sheet. Creditors they are concerned about getting paid and getting the principal repaid. Profitability and indebtedness as far as their effects on value. Managers ultimately, what value shareholders place on their performance. Short-term solvency ratios provide information about a firm"s liquidity.
