Time series can reveal whether a financial situation is improving or deteriorating. Care should be exercised to ensure that industry averages and ratios are truly comparable. There are a number of sources for industry averages. While financial ratios are useful in identifying trends in a contractor s financial condition, they are often not responsive to a rapidly deteriorating situation. In such cases, cash flow analysis will generally provide a more accurate picture of the contractor s financial health.
Share prices are another indicator of financial health.
They should be considered when evaluating the financial condition of publicly held firms. Share prices represent the stock market's assessment of the present value of a firm's future earnings. However, prices may be influenced by unique considerations, such as merger rumors. It is not a stand alone test. It can be useful by alerting the analyst to the need for additional analysis.