Ace Ratio Analysis With Example And Interpretation
Financial ratio analysis compares relationships between financial statement accounts to identify the strengths and weaknesses of a company.
Ratio analysis with example and interpretation. In other words it leverages on outside sources of financing. Current ratio Cash Marketable Securities Receivables Inventory Current Liabilities. This page simply gives an overall summary of the use and limitations of ratio analysis.
A company that has a debt ratio of more than 50 is known as a leveraged company. The debt ratio is a measure of financial leverage. It does not provide an insight on product profitability Profitability Profitability refers to a companys ability to generate revenue and maximize profit above its expenditure and operational costs.
INTERPRETATION OF ACCOUNTS RATIO ANALYSIS Introduction ratio analysis is a method traditionally used by people who wish to understand more fully the nancial statements and performance of an entity. It may be a signal of falling collection and cash reserves of a company. Similarly profitability ratios may be studied along with return on investment.
1 25000 loose tools should be excluded. Such interpretation may be more meaningful. Cash ratio Cash Marketable Securities Current Liabilities.
Current Ratio 167 or 5. Ratio analysis has been covered on an individual basis in the previous units. 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.
It means that the business uses more of debt to fuel its funding. As illustrated in the example above even if Company A generated 83 million and Company B generated 57 million only Company B was more efficient since it made more income for each dollar of its assets. Ratio Analysis M02_MCNA8932_01_SE.