Question

Give examples of how ratios gleaned from the financial statements can be used as a tool in helping a firm plan for the future. What do these ratios tell an an individual analyzing them? What limitations prevent the forecasts from being foolproof?

Answer 1

Answer:

Evalute risk and return

Explanation:

Various financial and accounting ratios are used to evaluate firms future, and they play an essential part in developing the financial statement. Overall, the most important factor they play is to plan for the future by carefully analyzing the firm's risk and return by using different ratios such as Liquidity Ratios, Leverage Ratios and Activity Ratios. They help to understand and predict the outcomes of certain investments and they point out the right investment and operation techniques to achieve desired outcomes. The market can change or later the whole decisions, and that makes it unpredictable to a certain extent.