Calculate and comment on the liquidity, gearing and investor ratios of a company, and state the limitations of ratio analysis.

1. 1 · Liquidity ratios. Current and quick ratios, with workings.
2. 2 · Gearing ratios. Gearing, debt to equity and interest cover.
3. 3 · Investor ratios. EPS (after preference dividends), DPS, P/E, dividend cover and yield.
4. 4 · Comment on each group.
   • Can the company pay its short-term debts?
   • How risky is its financing?
   • Is the share attractive to investors?
5. 5 · Compare. With last year or the industry, never in isolation.
6. 6 · Limitations. Historical year-end data, different policies, inflation, window dressing.
7. 7 · Conclude. Ratios raise questions for management; they are not answers on their own.

Scoring tip: Group your ratios under three headings; it makes the comments easy to follow.