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
Ratio Analysis Ratio analysis involves the calculation and comparison of ratios which are derived from the information given in the company 's financial statements. The historical trends of these ratios can be used to make inferences about a company 's financial condition, its operations and its investment attractiveness and whether the company has improved or deteriorated in the past few years. Financial ratio analysis groups the ratios into categories that tell us about the different sides of a company 's financial state. Some of those categories are described below: Financial Ratio Classifications Liquidity Profitability
Chapter 4: What is Fundamental Analysis? You can use fundamental analysis to assess a particular asset for its intrinsic value. In fundamental analysis, you examine qualitative and quantitative factors that affects the asset’s value. You study the industry conditions and the general economy. Also, you take note of the company management, and the company’s financial conditions.
Income Statement The income statement is a basic part of an annual financial report. It presents point by point breakdown of the benefits or misfortunes created by a business during a fiscal year. The principal subsection of the income statement demonstrates the gross profit or loss - that is, the contrast between aggregate incomes and expense of merchandise sold. Expense of products sold is the opening stock in addition to net buys minus the closing stock. The second subsection of the income statement demonstrates the net profit and loss of a business.
. Objective Of Financial Ratios The objective of the analysis of financial statements is to simplify the figures and their relationships and make possible comparisons to facilitate their interpretation. By interpretation, it is meant to give meaning to the financial statements and determine the causes of facts, unfavorable and favorable trends surveyed by analysis of the financial statements so that the negative effects for business can be avoided. Methods Of Financial Ratios The ratio analysis is the starting point for developing the information, which can be classified into 4 groups as
2.0 FINANCIAL RATIOS Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided in the financial statement. Financial ratios can be used to analyse trends and to compare the firm’s financial to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Since a ratio is simply a mathematically comparison based on proportions, big and small companies can be use ratios to compare their financial information.
The smaller investors are protected by these form price fluctuations. Functions in financial markets Distributing financial recourses to the potential users is the main responsibility of the financial institution. There are a number of financial institutions that collect and provide funds for necessary sector or individual. There are several institutions that act as a middleman and join the deficit and surplus unit. Investing money on behalf of the client is another of the variety of functions of financial institutions.
Capacity is the ability of the firm to pay its obligations by way of the cash flows generated by the business. Capacity is assessed by examining various accounting ratios such as the coverage ratio- a financial indicator that suggests a firm’s ability to meet its debt obligations. Capital is the amount of readily available cash. Whereas collateral is based on the quality of the asset(s) being sold to repay an obligation, if an event occurs. It is the security used to receive credit; for instance, a lien place on vehicle.
The basis of financial planning analysis and decision making is the financial information. Financial information is needed to predict, compare and evaluate a firm’s earning ability. It is also required to aid in economic decision making investment and financing decision making. The financial information of an enterprise is contained in the financial statements. Financial Statements have been widely defined in the extant literature by scholars and experts.
Statement of financial position helps users of financial statements to assess the financial soundness of an entity in terms of liquidity risk, financial risk, credit risk and business risk. The amounts reported on the statement of financial position are the amounts as of the final moment of an accounting period. INCOME STATEMENT: which is also called a profit and loss account is a financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenue and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically a year.