ABSTRACT
Ratios can provide important information in establishing standards, controlling performance, and providing operational information necessary to meet changing conditions. Since Return on investment (ROI) is a financial tool, it measures outcome in financial terms. ROI is derived from the two major financial statements, namely, the statement of income and the balance sheet. The different approaches to analyzing ratios will serve several objectives in establishing and maintaining ROI performance. They will serve: to compare internal ROI results; and to compare the total company or segments of the company with regard to competition. The receivables and inventories must be carefully monitored, however, to ensure that they are in keeping with acceptable levels of performance. One interesting application of using ratios is the Altman Bankruptcy Predictor Model, commonly referred to as the Z-Score. The Z-Score has many applications, some of which apply to interested parties outside the company, such as bankers and credit analysts.
