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How can I use financial ratios to assess a company's performance?

An example of an AI chatbot conversation about using financial ratios for company assessment.

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You

How can I use financial ratios to assess a company's performance?

MagicBuddy
MagicBuddy

Financial ratios are key indicators that help evaluate a company's financial health. They can be categorized into liquidity, profitability, and solvency ratios.

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You

Can you give me examples of these ratios?

MagicBuddy
MagicBuddy

Sure! Common liquidity ratios include the current ratio and quick ratio. Profitability ratios include the net profit margin and return on equity. Solvency ratios include the debt-to-equity ratio.

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You

How do I calculate the current ratio?

MagicBuddy
MagicBuddy

The current ratio is calculated by dividing a company's current assets by its current liabilities. The formula is: Current Ratio = Current Assets / Current Liabilities.

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You

What does a high current ratio indicate?

MagicBuddy
MagicBuddy

A high current ratio indicates that a company has more current assets than current liabilities, suggesting good short-term financial health.

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