... By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. For the purpose of analysis the ratios may be divided into the following four broad groups: liquidity(including cash-flow), profitability, gearing and performance ratios. What is presented below is a general survey of these ratios in their order and, their contribution and weaknesses to the analysis of the firm. Liquidity: The ability of a firm to meet its short-term financial obligations without having to liquidate its long term assets, or cease operations, is an important factor in the consideration of lenders, investors, and management.3 Shareholders cannot expect dividends from a company that has insufficient working capital to meet ...

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