How to diagnose a company

7 Oct No Comments

How to diagnose a company’s financial status:

a)Profitability because a company must attain and maintain profitability because companies can survive barely on creditors and investors. The net margin is a good metric to evaluate profitability. A large net margin indicates greater margin to financial security and that a company is in a good position to commit capital to growth and expansion.

b)Operating Efficiency. It is key to the success of financial status. It indicates the basic operational profit margin providing an indication of how well a company’s management controls cost.

c)Solvency which helps to indicate a company’s long term sustainability by measuring the debt against the equity thereby helping to measure investor interest and confidence in a company.

d)Liquidity which helps to survive in short term debt obligations thereby enhancing it to grow into long term debt obligations.

2.Financial ratios enhance each company to know the comparison of others and the times in which the ratios are achieved and it is an important thing for each company to understand. Companies such as Apple and Amazon do this and they understand their implications therefore making them more meaningful.

Explanation:

Financial status is the company’s scale financial resources and insurance especially after assessment and determining if it can be a potential supplier mainly done by the public body.

Financial Ratios: Company’s financial information used for comparison purposes mainly known as relationships.




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