Evaluating Financial Ratios

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p align&equals;"justify">Any decision maker or analyst should first understand the unique characteristics and environment of the respective industry in which it functions&period; For example manufacturing or wholesalers tend to have lower current ratio than retailers&period; The businesses which do not carry any inventory commonly have lower current ratio than manufacturing or merchandising firms&period; Smaller firms with unstable earnings have higher current ratios than large firms with greater reliable sources of cash receipts and revenue are capable to operate with lower current ratios&period; <br &sol;>Higher current ratio indicates the greater paying ability&comma; but an extremely higher current ratio like 5 to 1&comma; 4 to 1 may result in the &&num;8220&semi;tide up&&num;8221&semi; of firm&&num;8217&semi;s resources in current assets&period; To sustain a greater liquid position the firm may be passing up opportunities for growth&period; <&sol;p>&NewLine;<h3>&&num;160&semi;<&sol;h3>&NewLine;<h3>Standards of Comparison<&sol;h3>&NewLine;<p align&equals;"justify">&&num;160&semi;<&sol;p>&NewLine;<p align&equals;"justify">If Bobby Company has figure of current ratio as 1&period;82 to 1&comma; for evaluating such figure what standards for comparison should generally be used&period; Decision makers commonly use two criteria in evaluation of ratios&period; First is yearly trend in ratio&comma; to know about the trend analyst can easily determine the firms performance is deteriorating or improving over a period of years&period; Second criterion&comma; when analyst or decision maker compares firms financial ratios with the firms industry and overall industry average for respective ratios&period; In the light of these decision criterions&comma; decision makers evaluate a particular ratio with current business environment&period; <&sol;p>&NewLine;<p align&equals;"justify">Financial ratios are very useful tools to evaluate the performance of a firm&comma; the person who understand the unique features of the firm and the dimensions of the industry can only interpret the ratios properly&period; &NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;