The Role of Financial Ratios

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The Role of Financial Ratios

By | March 2011
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The Role of Financial Ratios

Table of content

Introduction3
Chapter 1. Notion and types of ratios.4
1.1 Liquidity ratios.5
1.2 Financial leverage ratios7
1.3 Funds management ratios9
1.4 Profitability ratios12
Chapter 2. Use of financial ratios.15
2.1Use and Limitations of Financial Ratios15
2.2 Used financial data15
2.3 Financial ratios calculated for The Apple Company16
2.4 The Dupont Model18
Appendix 121
Conclusion23
Bibliography24

Introduction
I have chosen this topic for my coursework because I find ratio analysis the most common way to evaluate the performance of an enterprise and its interest for investor. As in future I plan to work in a financial department, this analysis was of great interest for me. Financial analysis helps to answer many important questions like what was the performance of the enterprise, is it profitable to give loan to a client, will the share price increase in the nearest future and so on. And financial ratios are the most efficient and the easiest source of information for such analysis. From dozens of various financial ratios I have chosen the most widespread and common, analysed them in accordance with their meaning and use. I presented equations for calculations of financial ratios and worked out the procedure using the example of Apple Company. I have also found information about recommended value for some of these ratios. The results of my work are presented in this paper.

Chapter 1. Notion and types of ratios.
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios...

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