Cash is generally the most liquid assets of the business. However, liquidity relates to the ability to convert assets to cash. An analysis of liquidity and cash can be done by using ratios. Other ratios such as profit margins and debt to equity are important for assessing the overall health of the company. However, while ratios are helpful, they may be hard to analyze.
Ratios are only averages.
It is hard to compare the averages of companies in different industries. In addition, firms want to do better than average. Seasonal factors are also difficult to determine. Accounting practices differ. In addition, the question arises as to whether a ratio is good or bad according to the industry and operating philosophy of management.