Although Financial Ratio Analysis Has Limitations It Is A Go

Question

Although Financial Ratio Analysis Has Limitations It Is A Great Tool Although Financial Ratio Analysis has limitations, it is a great tool to find the problematic areas in the company so that managers can go back and address the problems. One of the limitations is differences in accounting standards around the world that can distort financial ratios. Select two publicly traded US companies listed on the NASDAQ stock market and calculate each company’s P/E (Price to Earnings Ratio) and MB (Market to Book Ratio). What do these ratios tell you about how investors value these two companies’ future prospects? Search the SEU library or the Internet for an academic or industry-related article. Select an article that relates to these concepts and explain how it relates to doing business in Saudi Arabia. For your discussion post, your first step is to summarize the article in two paragraphs, describing what you think are the most important points made by the authors (remember to use citations where appropriate). For the second step, include the reference listing with a hyperlink to the article. Do not copy the article into your post and limit your summary to two paragraphs. Let your instructor know if you have any questions and enjoy your search.

Dr. Jack HW Helper · Accepted Answer

Introduction Financial ratio analysis, particularly the Price to Earnings (P/E) ratio and Market to Book (MB) ratio, are vital tools utilized by investors and financial analysts to gauge a company's valuation, future prospects, and financial health. These ratios are critical benchmarks, especially when comparing companies within the same industry or market segment. However, their interpretation can be complicated by various factors, including differing accounting standards that may distort the ratios. Conducting a comparative analysis of two NASDAQ-listed companies and examining relevant scholarly articles can uncover valuable insights into how these ratios reflect investor sentiments and how these concepts apply in different economic contexts, such as Saudi Arabia. Analysis of Selected Companies and Ratios To illustrate these points, let's consider two well-known publicly traded companies on NASDAQ: Apple Inc. (AAPL) and Tesla Inc. (TSLA). As of the latest financial statements, Apple’s P/E ratio stood at approximately 28, whereas Tesla’s P/E ratio was significantly higher at around 90. These figures suggest that investors are willing to pay a premium for Tesla’s earnings, possibly due to expectations of rapid growth and innovation. Similarly, the Market to Book ratio, which compares a company's market value to its accounting book value, was approximately 34 for Apple and about 25 for Tesla. A higher MB ratio indicates that investors value Apple more highly relative to its book value, which can suggest confidence in its brand, technology, and future earning potential. These ratios reveal that investors perceive Tesla as a growth stock with substantial future prospects, albeit with greater risk, while Apple’s consistent high valuation reflects stability and strong brand loyalty. Implications and Relationship to Business in Saudi Arabia Scholarly articles highlight that such valuation ratios are heavily influenced by regional factors, including market maturity, invest

Although Financial Ratio Analysis Has Limitations It Is A Go

Although Financial Ratio Analysis Has Limitations It Is A Great Tool

Paper For Above instruction

Introduction

Analysis of Selected Companies and Ratios

Implications and Relationship to Business in Saudi Arabia

Conclusion

References