Financial ratio - The extent to which financial ratios analysis is applicable when measuring a company performance in hospitality industry which is doing the business across different segments. 1.2 Background Financial ratios are some of the most widely used tools to evaluate the performance, solvency and viability of a company going forward. They are obtained as a result of comparing two different financial entries of values contained in the business company’s financial statement. As such the financial ratios are used by various member of the company including the management, executive, shareholders and even financiers among others. Importantly, the ratios are very crucial to potential shareholders because they use some of them, such as
It is also useful for diagnosis of the financial health of an enterprise. This is done by evaluating liquidity, solvency, profitability, etc Such an evaluation enables management to assesses financial requirements and the capabilities of various business units. Ratios are helpful in business planning and forecasting. The trend ratios are analyzed and used as guide to future planning. What should be the course of action in the immediate future is decided, many a times, on the basis of trend ratios.
This ratio analysis can be used to assess financial strength and weakness of a business as well as a platform to make financial decisions. It can also use for budgetary, future planning and comparison purposes. Once the financial ratios been calculated, non-finance background people including stakeholders, lenders, management, and investors will be able to comfortably mingle with finance statistics as it will highlight the necessary information of the company rather than go through the whole financial report. According to Fraser and Ormiston (2004) financial analysis can be categorized by four types of ratios which are liquidity ratio, profitability ratio, efficiency ratio and leverage ratios. However, despite the advantages of ratio analysis, certain limitations will make it less meaningful.
The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of the firm ratio analysis is relevant in assessing the performance of a firm in respect of the following points. 1. Liquidity positions: With the help of ratio analysis conclusions can be drawn regarding the liquidity position of the firms. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due the liquidity ratios are particularly useful in credit analysis by banks and other supplier of short–term loans. 2.
Financial ratios: a percent, rate, or proportion that expresses a mathematical relationship between two financial quantities Liquidity ratios: evaluates how quickly a company can convert short-term assets and liabilities into cash Current ratio: evaluates a company’s ability to pay its short-term debt (current liabilities) Comparing financial data: examining financial data from multiple years to see trend lines for key measures such as net income, revenues, cost of goods sold, operating expenses, and gross margin Acid-test ratio: a more conservative liquidity ratio that evaluates how quickly cash, short-term investments, and accounts receivable can be converted into cash Inventory turnover: how long a company holds onto its services or products (inventory) Profitability ratios: measurements which reflect a company’s ability to use its assets efficiently to produce profits Return on sales/profit margin: provides insight into how efficiently and profitably a company is being run, determined by dividing net income after taxes by net sales Ratio analysis: using comparisons to gather information and see trends Basic earnings per
As a technique of financial analysis, accounting ratios measure the comparative importance of individual items of position and income statements. In order to assess the profitability, solvency and efficiency of a company, ratio analysis can be used as an effective
Financial Ratios Financial ratios show the relationships between various financial data as recorded in the company’s financial documents. These ratios can be used to compare the performance of one company with another. The ratios are based on the information contained in the balance sheet and
Reason being is that a large portion of the high current liabilities may relate to the pre-purchased tickets, which the airline can honour for a relatively low marginal cost. b) Profitability Profitability ratios are used in an effort to evaluate management’s ability to monitor and control expenses, and to earn a profit on resources committed to the business. These particular ratios assess a company’s strengths and weakness, operating results and growth potential. Moreover, they measure on the efficiency of assets being used to generate net income and sales. The higher the ratio, the more effectively a company is using their assets.
Ratio analysis is a financial statement which provides the business with detail information and data on the business. Ratio analysis can help businesses such as it can benefit them by analysing their financial health or firmness and progression of their business. There are three types of ratio analysis and there are Profitability ratios, Liquidity ratios and Efficiency ratios. These are the different types of ratio analysis and they recognise characteristics of a business performance. On the other hand, quantitative and qualitative are also part of ratio analysis as they help businesses by getting a complete outline of their business.
The study has used secondary sources for the purpose of the study. The primary criteria of this project is to evaluate the financial performance of a company, identifying how the company is actually working and whether the actual performances are in accordance with the standard performance and in case of any deviations the purpose is to find suitable solution to overcome from the deviations. Those different studies has been made by using the consolidated statement of comprehensive income and consolidated statement of financial positions and operating as well as current ratios are also used for the purpose of the