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To analyze company ratios and guess their industries: 1. Understand common financial ratios like liquidity, profitability, solvency, and efficiency ratios. 2. Examine company ratios for patterns indicating certain industries. For example, banks have high liquidity but low profitability. 3. Compare company ratios to industry averages to identify matches. 4. Consider multiple ratios together rather than single ratios alone. 5. Check for additional clues about industries from context or business activities. 6. Make educated guesses about industries for each company based on clear analysis of ratios cited.

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31 views1 page

For Scripd 4

To analyze company ratios and guess their industries: 1. Understand common financial ratios like liquidity, profitability, solvency, and efficiency ratios. 2. Examine company ratios for patterns indicating certain industries. For example, banks have high liquidity but low profitability. 3. Compare company ratios to industry averages to identify matches. 4. Consider multiple ratios together rather than single ratios alone. 5. Check for additional clues about industries from context or business activities. 6. Make educated guesses about industries for each company based on clear analysis of ratios cited.

Uploaded by

meghachawda7
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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To analyze the ratios and make educated guesses about the industries to which the companies

belong. To do this, you'll need to look at the characteristics of each industry and compare them to
the ratios provided. Remember that this is a hypothetical exercise, and without specific company
names or additional context, we can only make educated guesses. Here's a general approach:

1. Understand the Ratios: Start by understanding what each ratio measures and what is
considered typical for different industries. Common ratios used in financial analysis include:

 Liquidity Ratios: These measure a company's ability to meet short-term obligations.


Examples include the Current Ratio and Quick Ratio.

 Profitability Ratios: These measure a company's ability to generate profits. Examples


include Net Profit Margin, Gross Profit Margin, and Return on Equity (ROE).

 Solvency Ratios: These assess a company's long-term financial stability. The Debt-to-
Equity Ratio and Interest Coverage Ratio are examples.

 Efficiency Ratios: These evaluate how efficiently a company uses its assets. The Asset
Turnover Ratio and Inventory Turnover Ratio are examples.

2. Analyze the Ratios: Examine the ratios provided for each company. Look for patterns or
characteristics that might be indicative of a particular industry. For example:

 Companies in the banking industry typically have high liquidity ratios and may have
lower profitability ratios due to high operating costs.

 Automobile companies might have moderate liquidity ratios but may excel in
efficiency ratios like inventory turnover.

 Cement companies might show higher solvency ratios due to significant capital
investments in infrastructure.

3. Compare Ratios to Industry Averages: Research industry averages for these ratios. This can
give you a benchmark to compare the provided ratios against. If a company's ratios closely
align with industry averages, it's a good indicator of its industry.

4. Consider Multiple Ratios: Don't rely on a single ratio; consider multiple ratios together. For
example, if a company has high liquidity ratios, low profitability ratios, and high solvency
ratios, it may be a bank.

5. Check for Additional Clues: Sometimes, the context or any additional information provided
in the assignment might offer clues about the industry. For example, if a company's ratios are
accompanied by information about its core business activities, that can be very helpful.

6. Educated Guesses: Based on your analysis and comparisons, make educated guesses about
which industry each company belongs to. Explain your reasoning clearly, citing the specific
ratios and characteristics that led you to your conclusions.

Remember that this is an exercise in financial analysis, and the accuracy of your conclusions depends
on the quality of your analysis and the ratios provided. Make sure to document your thought process
and assumptions clearly in your assignment.

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