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Analysts use financial ratios to help learn about the firm¡¯s profitability, growth and resource needs. Through this analysis, we detect and understand relationships among various financial statement items. These relationships will provide clues about the outlook for the business. We will use these clues to develop the forecasts needed in our valuation work. Analysts use operating ratios to understand elements of a company¡¯s business, such as profitability and capital efficiency. Operating ratios include revenue growth rate, gross margin percentage, operating margin percentage, effective income tax rate, days receivables outstanding, days payables outstanding, and inventory turnover.
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