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To find out how well an organization is performing, it is helpful to conduct a financial ratio analysis, and then compare these ratios with the suitable industry benchmark. An organization's liquidity, profitability, asset turnover and debt management ratios are significant ratios to analyze. These ratios show the rate of return on shareholder investments, as well called return on equity (ROE). If an organization's ROE is below the suitable industry benchmark, it must try to increase its sales, reduce its expenses, or both. An organization's ROE is magnified when its debt level is relatively high. Though, unfortunately, financial ratio analysis is not without problems.

Describe some of the problems associated to financial ratio analysis? How can such problems be rectified?

Basic Finance, Finance

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