From the course: Cert Prep: CFA Exam Level 1

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Ratios in financial statement analysis

Ratios in financial statement analysis

From the course: Cert Prep: CFA Exam Level 1

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Ratios in financial statement analysis

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- [Instructor] Financial statements don't just tell you what happened. They also hint at why it happened. In this lesson, we'll explore how a company's strategy is reflected in its financial ratios, and how you can use past performance to evaluate management's decisions and direction. A company's strategy, whether it's focused on growth, cost control, expansion, or stability drives its operations. Those operations in turn shape the financial results. By analyzing ratios over time, you can reverse engineer what strategy the company has been following. Let's look at how each ratio type reveals strategic choices. Profitability ratios show how well the firm turns revenue into profit. Did they prioritize margin or volume, for example? Efficiency ratios reflect how well assets are being used. They help to capture things like asset utilization and operational discipline. Liquidity ratios can signal conservative versus aggressive…

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