1. Appendix: Financial Ratios
Introduction to MIS
Appendix: Financial Ratios

2. Appendix: Financial Ratios
Goals
Highlight relationships among financial accounts
Compare firms within industries
Categories
Profitability
Liquidity
Activity
Leverage (debt)
DuPont Analysis
Margin versus Quantity

3. Profitability Ratios
Higher is better. Except a high P/E ratio might indicate that a stock is overpriced in the market.

4. Liquidity Ratios
Higher is better. Except too high implies excess cash on hand--which should be invested.

5. Activity Ratios Low implies excess capacity or poor sales.
Low implies poor inventory management or weak sales.
Low implies poor management of collections.

6. Leverage Ratios Highly variable, depending on management and industry.
Low implies problems with covering debt payments.

7. DuPont Analysis
Choice: sell at high profit margin, or high volume.