Three Cases in Basic Financial Ratio Analysis

• In Event: Service Learning and Cases

Abstract

When students are first introduced to ratio analysis they most often focus on memorizing the formulas and calculating the answers. These three short cases are designed to help students begin to develop a deeper understanding of the information provided by ratio calculations and how they can use it to evaluate different aspects of a company. Students calculate basic ratios, compare results to industry averages and to ratios of a competitor. They are also tasked with explaining how the ratios provide insights regarding key business processes. Critical thinking components include developing expectations, discussing why some ratios may not apply in a given situation, and explaining why data may not be comparable between companies. Students also calculate and comment on financial ratios for one company in a different industry. Finally, students learn about industry-specific key performance indicators for the two industries.

Authors

• Kristy Schenck, Bucknell University

• Cynthia P Guthrie, Bucknell University