Question

document? 2 Do financial ratios from balance sheets and income statements tell us whether to buy or sell stock? 3 The efficient market hypothesis suggests that it is difficult to outperform the market on a consistent basis. Are there possible exceptions to the hypothesis that concern the valuation

Answer 1

Financial ratios like Debt-to-Equity ratio, current ratios, Debt-to-assets ratio, fixed assets ratios are performed over Balance sheet. Financial ratios like Operating Income ratio, Net profit and gross profit are performed over Income Statement. These tells us the firm's position, income levels, gains, losses, operational efficiency, liquidity and insolvency. This may indicate where the firm is headed to. Although the results are provided by the firm at a quarterly end, and if the investor is inclined to sell for a short term, it may not be advisable to follow the old reports since it won't reflect the daily demand and supply for the stock price. For the long term investors, yes the quarterly reports and performed ratios over it signify how much growth can we expect. That's why for investors whoever are going long on equity can save from the stock price clashes as well as from tax benefits.