Posted on October 18, 2020 by Investment Cell | Student Speak
Accounting isn’t just boring complicated mathematics, it’s a tool that can help detect trends and make judgements on the performance of a company over the years and in comparison, to its competitors. That is what Dr. Uma Nagarajan, Associate Professor of Finance and Accounting, ISBF made us realise. The list of numbers that are listed on Moneycontrol and other such websites started making sense to us after this event as we analysed real financial statements and discussed, at length, what do the ratios really tell us.
There’s a list of ratios informed traders talk about. But what do these mean? Liquidity ratios give an idea of how comfortably a company can pay its short-term liabilities. If you have concerns about the going-concern of the company you’ve invested in, this could be the right place to start. Financial ratios show how well the company is using the funds invested in it. The efficiency of a company can be judged by these ratios. If these aren’t in line with the industry averages, then something is cooking for sure. Market value ratios evaluate the share price of a company’s stock. Valuations and the quality of your investment can be assessed through these figures. The long financial statements, that auditors spend months checking, are of a lot of use if you know how to read them.