Financial analysis according to the video that I watched that it is a continuation of accounting

that uses figures of numbers to provide insights about the company’s performance. The main
purpose of FS analysis is to assess the company’s performance and soundness of 4 critical
dimensions namely: growth, liquidity, profitability, solvency.

Debt ratio shows what portion

of a company’s assets is financing with debt and in order to calculate it we need to divide the
total liabilities to total assets. The higher the debt ratio, the more leveraged a company is,
implying greater financial risk. At the same time, leverage is an important tool
that companies use to grow, and many businesses find sustainable uses for debt. The debt
ratio measures the amount of leverage used by a company in terms of total debt to total assets.
A debt ratio greater than 1.0 (100%) tells you that a company has more debt than assets.
Meanwhile, a debt ratio less than 100% indicates that a company has more assets than debt
A low level of risk is preferable, and is linked to a more independent business that does not need
to rely heavily on borrowed funds, and is therefore more financially stable. These businesses will
have a low debt ratio (below .5 or 50%), indicating that most of their assets are fully owned
(financed through the firm's own equity, not debt).

A high risk level, with a high debt ratio, means that the business has taken on a large amount of
risk. If a company has a high debt ratio (above .5 or 50%) then it is often considered to be"highly
leveraged" (which means that most of its assets are financed through debt, not equity).

In some instances, a high debt ratio indicates that a business could be in danger if
their creditors were to suddenly insist on the repayment of their loans. This is one reason why a
lower debt ratio is usually preferable. To find a comfortable debt ratio, companies should
compare themselves to their industry average or direct competitors.

The interest coverage ratio measures a company's ability to handle its outstanding debt. It is one
of a number of debt ratios that can be used to evaluate a company's financial condition

Creditors can use the ratio to decide whether they will lend to the company
The term "coverage" refers to the length of time—ordinarily the number of fiscal years—for
which interest payments can be made with the company's currently available earnings. In simpler
terms, it represents how many times the company can pay its obligations using its earnings.

If a company has a low-interest coverage ratio, there's a greater chance the company won't be
able to service its debt, putting it at risk of bankruptcy. In other words, a low-interest coverage
ratio means there is a low amount of profits available to meet the interest expense on the debt.
Also, if the company has variable-rate debt, the interest expense will rise in a rising interest rate
environment. 

A high ratio indicates there are enough profits available to service the debt, but it may also mean
the company is not using its debt properly. For example, if a company is not borrowing enough,
it may not be investing in new products and technologies to stay ahead of the competition in the
long-term. 

ROA

The ROA figure gives investors an idea

of how effective the company is in converting the money it invests into net income. The higher
the ROA number, the better, because the company is earning more money on less investment.
Return on equity (ROE) is a measurement of how effectively a business uses equity – or the
money contributed by its stockholders and cumulative retained profits – to produce income. In
other words, ROE indicates a company’s ability to turn equity capital into net profit.
A high ROE suggests that a company’s management team is more efficient when it comes to
utilizing investment financing to grow their business (and is more likely to provide better returns
to investors). A low ROE, however, indicates that a company may be mismanaged and could be
reinvesting earnings into unproductive assets.

WORKING CAPITAL
 Working capital is the difference between a business’ current assets and current
liabilities or debts. Working capital serves as a metric for how efficiently a company is operating
and how financially stable it is in the short-term. The working capital ratio, which divides current
assets by current liabilities, indicates whether a company has adequate cash flow to cover
short-term debts and expenses. A healthy company should have a positive ratio.

Working capital is just what it says – it is the money you have to work with to meet
your short-term needs.  It is important because it is a measure of a company’s ability to
pay off short-term expenses or debts.

But on the other hand, too much working capital means that some assets are not being
invested for the long-term, so they are not being put to good use in helping the company
grow as much as possible.

The most important positions for effective working capital management are inventory,
accounts receivable, and accounts payable. Depending on the industry and business,
prepayments received from customers and prepayments paid to suppliers may also play
an important role in the company’s cash flow. Excess cash and nonoperational items
may be excluded from the calculation for better comparison.