A financial ratio by itself tells us little about a company because financial ratios vary a great deal across industries. There are two basic methods for analyzing financial ratios for a company: time trend analysis and peer group analysis. Why might each of these analysis methods be useful? What does each tell you about the company’s financial health? Why do you think most long-term financial planning begins with sales forecasts? Put differently, why are future sales the key input? Consider the ratio EBITD/Assets. What does this ratio tell us? Why might it be more useful than ROA in comparing two companies?
