Beautiful Work Interpretation Of Financial Ratios Pdf
Calculation of ratios is comparatively simple routine clerical in nature but interpretation of ratios is highly sophisticated and intricate phenomenon.
Interpretation of financial ratios pdf. This ratio is a comparison between assets that can be readily turned into cash -- current assets. Activity ratios - the liquidity of specific assets and the efficiency of managing assets 2. Operating profitability ratios 4.
These ratios are used by financial analysts equity research analysts investors and asset managers to evaluate the overall financial health of businesses with the end goal of making better investment decisions. 1 Simplifies financial statements. A ratio is statistical yardstick by means of which relationships between two or various figures can be compared or measured.
Liquidity Activity Leverage Operating Performance and Cash flow. Ratios show how one number is related to another. Ratios can be divided into four major categories.
Not all these ratios. The percentage of gross profit to sales or the working capital ratio. 2 Interpretation Here the results of analysis are used to judge a business performanceThis is done by making comparisons a with other similar businesses usually within the same year eg.
Advantages of Ratios Analysis. Operating cycle Inventory Inventory Number of days of inventory Average days cost of goods sold Cost of goods sold 365 Accounts receivable Accounts receivable Number of days of receivables Average days sales on credit Sales on credit 365 Accounts payable Accounts payable. KEY FINANCIAL RATIOS The thorough valuation analyst will consider and compute five categories of ratios.
O Profitability Sustainability o Operational Efficiency o Liquidity o Leverage Funding Debt Equity Grants The ratios presented below represent some of the standard ratios used in business practice and are provided as guidelines. A financial ratio is a comparison between one bit of financial information and another. Can it withstand an economic downturn.