¶ … Corporate Finance Tools
Company chosen: Royal Dutch Shell.
How are Financial Ratios Used?
Many analytical tools, techniques and concepts have been developed by both analysts and investors to compare companies' strengths and weaknesses over the years. Fundamental analysis is based on these tools, techniques and concepts (Lan, n.d.).
Ratio analysis was developed as a tool for the performance of quantitative analysis on the numerical figures that occurred in financial statements. Ratios assist in the connection of the three financial statements and provide numbers that can be used to compare different organizations, industries and even sectors. One of the most broadly applied techniques of fundamental analysis is ratio analysis (Lan, n.d.).
The following ratios are used by companies to display several important performance indicators to investors and also provide data from past years for the purpose of comparison. They are also used internally to see the company's performance against competitors (Lan, n.d.).
1. The company's efficient utilization of assets is measured using activity ratios. They give investors an idea of the firm's general operational performance.
2. The efficient usage of the firm with the aim of generating revenue is measured using asset turnover.
3. Next to...
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