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What information do you need to project an agency’s future financial stability?

  1. What information do you need to project an agency’s future financial stability?
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Answer #1

Information needed to judge a firms financial stability are
1. The profits and profitability ratios of last 5 years is needed. It gives a good idea whether the profits and profitability is increasing or decreasing. They are good indicator of financail stability of a company.
2. The debt ratios like debt to equity ratio , Time interet earned ratio of last 5 years is needed. This helps to understand the risk and thr debt repaying capacity of the firm.Lower debt repaying capacity and higher leverage reduces financial stability.
3. The liquidity ratios like current ratio, quick ratio ,etc are required to identify the paying capacity of the company to pay off it short term debt or creditors. Unfavourable ratios could lead to liquidity crunch and it wont be able to pay its creditors on time.

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