Ratio are just figure, without any supported explanation, calculation and definition. Ratio take into account only financial perspective, other factors affecting the performance of the company are not taken into consideration. The ratios losses their importance over a period of years due to factors such as inflation. Let's discuss each of the above problems separately 1 Loss making Companies, even if a small limited company is incurring losses, it does not mean necessarily that the company is worthless, the owners of small business run the company for many other reasons other than. Such small companies do not intend to grow into larger companies as they are working just to maintain their particular life style. In the case of a public listed company, a loss may leave an adverse impact on its long term growth and investor, every company in order to survive in the long run need to be profitable (Reid and Smith, 2000).
Ratio, analysis, assignment, help
Critically discuss the the limitations of using the financial Ratio analysis. Financial Ratios are ratios computed by the mangers to evaluate the performance, progress and achievements of the company with other companies in the same industry. Financial ratios also help the investors, creditors, lenders, analyst and managers in critically analysing an investment opportunity and credit decisions. The ratios compare the risk and return of a firm with that of other firms, thus ratio analysis support inter firm comparison. Sondhi and dov fried, The Analysis and Use of Financial Statements, 3rd edn, wiley, 2003.111). A lot of research done in the past has shown that the performance of enterprises especially small and medium wallpaper sized enterprises can be evaluated through the use of financial ratios. This report is aimed at showing the use of financial ratios is not the best method of evaluation performance of companies due to the inherent limitations of ratio analysis. Drawbacks in using ratio analysis, when one uses the accounting and financial ratios as a method of assessing company's performance face the following problems: In case of a loss generating company, the ratios seem meaningless. The financial ratio are not uniform. There is no standard of ratios, there is no single definition of a correct ratio. The ratio can be manipulated easily according to the requirements of the presenter.
Lower operational costs, balance sheet as on March 31, 2009(Rupees in Cr). ParticularsAs atMarch 31,2009As of funds. Shareholders' funds, share and 13446.2511004.812441.4422.19, loan funds,.3718.2522.12121.21, deferred tax liabilities(NET) 103.05101.431.621.60. Total funds employeed 13589.6711124.492465.1822.16, application of funds, fixed assets, gross work in 3354.212830.27523.9418.51. Pre - operative expenses(pending alloca investments 5936.034509.331426.731.64, deferred tax assets.6546.94-43.29-92.22. Current assets, loans andadvances, interest Accrued on and Bank and 9247.147329.571917.5726.16, less: current liabilities andprovisions, current). Abstract, this paper is a critical analysis of two main issues, firstly, the limitations of ratio analysis and secondly the effect of credit crunch on the corporate sector. The purpose of this paper is to find out the inherent limitations of ratio analysis and how the corporate sector suffered a setback from the credit crunch which started from us and hit the world globally. Question real one 50 marks, the financial ratios are ways of comparing and investigating the relationships between different pieces of financial information.
The current ratio is not the best indicator of company performance because it fails to take into account the composition of the current assets. The current cash debt coverage ratio provides a more clear illustration of company performance because net cash provided by operating activities encompasses the entire year versus a balance at a specific point. The current cash debt coverage ratio shows a gradual increase each year. Based off of the inventory turnover ratio, cvs was most efficient in inventory management in 2011. Similarly, the accounts receivable turnover rate, which measures the efficiency of a business in collecting credit sales, was also at its peak in 2011. Their increased credit sales is a general indicator of improvement in the process of cash collection on sales. Overall, cvs has shown improvement between 20Although the.
Financial, ratio, analysis - original Writing by lindas
Ratios are simply one number divided by another; as such they may or not be meaningful. In finance, ratios are usually two financial statement items that may be related to one another and may provide the prudent user a good deal of information. Of the myriad of ratios that could be generated, some will be more meaningful than others. Generally ratios are divided into four areas of classification that provide different kyi kinds of information: liquidity, turnover, profitability and debt. Company name: cvs, ratio, current ratio.56.60.43.
Current cash debt coverage ratio.51.41.31. Inventory turnover.34.24.04, accounts receivable turnover.52.57.21. Is the overall liquidity position improving, worsening, staying the same or cannot say, between 20? Why do you say so? In general, the overall liquidity position for cvs was gradually improving through. While the current ratio was highest in 2010, the company experienced a slight decline the following year, where for every dollar of current liabilities the company had.56 of current assets.
D) Gross Margin: year Result.0906.0226.0915.0927 Comment:In the year 2004 Gross Margin decreased. E) Net Profit : year Result.0138.0404.0300.0307 Comment: In the year 2003 Net Profit Decreased. F) Operating Profit Margin : year Result.197.04.72.79 comment: In the year 2003 Operating Profit Margin decreased. G) Depreciation Expense to Operating Expense ratio: year Result.009:1.008:.99:1.015: 1 Comment: In the year 2002006 Dep. Expense to Operating Expense ratio decreased. H) Inventory turnover: year Result.166.122.636.727 Comment: In the year of 2003 Inventory turnover decreased.
I) Time interest Earned: year Result.619.486.337.427 Comment: In the year of 2005 Time Interest Earned decreased. Conclusion recommendation: Ratios are just one number divided by another and as such really dont mean much. The trick is in the way ratios are analyzed and used by the decision maker. A good strategy is to compare the ratios to some sort of benchmark, such as industry averages or to what a company has done in the past, or both. Once ratios are calculated, an analyst needs some benchmarks to find out where the company stands at that particular point. Useful benchmarks are industry comparisons and company trends. It may be useful to compare a company to certain industry averages to get a feel for how the company is performing. In that case it is necessary to obtain industry performance measures. One of the ways in which financial statements can be put to work is through ratio analysis.
Profitable, ratio, analysis of Thorntons Plc case Study
Remember, you have to make comparisons among companies in a particular industry, or to historical averages. Performing ratio analysis correctly will take time, a lot of time, but when it comes to investing your money, you should always be willing to spend time to make an informed decision. Objective methology, our Objective is to find the different kind of ratio of Apex weaving finishing Mills Ltd. Formulas are given below : a) Current Ratio current Assets, current liabilities b) quick ratio Current Assets-Inventory or Stock. Current liabilities c) Debt-Equity ratio total Debt, total Equity d) Gross Margin Gross margin x 100. Net Sales e) Net Profit Margin net profir after tax x100. Net sales f) Operating Profit Margin Operating Profit x 100 Net sales g) Depreciation Expense to operating Expense ratio Depreciation Expense total Operating Expense h) Inventory turnover cost of goods sold average inventory or stock i) Times Interest Earned ebit interest Expense findings. B) quick ratio ; year Result.544:.524:.487 :.473: 1 Comment: In the year 2006 quick ratio decreased. C) Debt- Equity ratio: year Result.969:.378:.462:.610: 1 Comment: In the year 2004 debt equity ratio decreased.
Debt-to-total Capital Ratio measures the degree to which the firm has been financed by revolutionary debt. The, interest coverage ratio can help to determine the firms ability to repay its debt obligations. Another way of measuring whether a company will be able to meet upcoming debt obligations is to use the. Cash Flow to Interest-bearing Debt Ratio. Countless ratios exist, and this list is by no means exhaustive. Ive tried to identify the most widely used and what are in my opinion, the most relevant ratios in the industry. Ratio analysis works best as a supplement to other stock analyses.
average ratios, or industry rules-of-thumb. Theres no set procedure for performing ratio analysis because it all depends on the type of company youre analyzing certain industries have industry specific ratios. Regardless, this article will give you an overview of some of the standard ratios and what they may tell us about a company. Ill group ratios into four categories used to evaluate the different facets of a companys performance and overall condition: liquidity, operating performance, leverage, and equity valuation. The, current Ratio is the perhaps best-known measure of a companys liquidity. The, quick ratio is a more stringent measure of a companys short-term liquidity position. Inventory turnover measures how efficient the firm is in processing inventory and inventory management. It measures how lean the firm runs with respect to inventory and how quickly it can sell its inventory.
This provides an idea of whether the entity can pay forthcoming bills. A ratio of less than one is a dangerous signal in that current bills are greater than current assets such as cash. This report is based on the rules of Business carries a minimum is report will help us to upgrade our grades we get in our also enrich our knowledge about ratio analysing of companies. Acknowledgement, i would like to acknowledge. Nazmul Islam,lecturer, School salon of Business, University of Information Technology science for this supervision and valuable guidance. During the preparation of this report we have collected many important information from various books and articles. I would also like to acknowledge those authors. Introduction, the study and interpretation of the relationships between various financial variables, by investorss or lendrer.
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Was this document useful for you? Yes no, thank you for your participation! your assessment is the very important for improving the work of artificial intelligence, which forms the content of this project. A ratio is a way of comparing two or more quantities. Analyzing any companys current ration,quick ratio,debt-Equity ratio,gross Margin percentage, net Profit Margin,Operating Profit Margin, depreciation Expense to Operating expense ration, Inventory turnover, times Interest Earned is Ration analysis. Ratio analysis is used to judge the financial success of an economic entity. One popular ratio is the current ratio which is current assets divided by current liabilities. Executive summury, a ratio is a way of comparing two or more alysing any companys current ration,quick ratio,debt-Equity ratio,gross Margin percentage, net Profit Margin,Operating Profit Margin, depreciation Expense to Operating expense ration,Inventory turnover, Times Interst Earned is Ration analysis.