Ratio analysis involves the comparison of financial data to gain insights into business performance.
Effective ratio analysis means you:
- Need to compare with competitors
- Need to analyse over time
Income statement- revenues, cost of sales, gross profit, operating profit, net profit.
Statement of financial position- current assets, current liabilites, inventories, trade recievables, long term liabilites and capital reserves.
Profitability ratios- shareholders, government, competitors, employees
Liquidity- shareholders, lenders, suppliers
Financial efficiency- shareholders, lenders and competitors
Key limitations include:
- One data set is not enough
- How reliable is the financial data?
- Ratios are based on the past
- Comparability
Comments
No comments have yet been made