TRANSFORMATION OF FINANCIAL RATIOS: THE IMPACT OF THE ACCOUNTING ENVIRONMENT Jussi Nikkinen and Petri Sahlstr¨ m o ABSTRACT This study investigates the distributional properties of ﬁnancial ratios and the usefulness of the Box and Cox (1964) power transformation in normalizing ﬁnancial ratios in different...
LIMITATIONS OF RATIO ANALYSIS The debt-equity ratio gives an indication of an enterprise’s ability to sustain losses without jeopardizing the interests of creditors. This ratio is based only on information provided in the balance sheet. Although stockholders’ equity serves as a buffer to protect the...
1. What are the five major categories of ratios, and what questions do they answer? * Liquidity: Can we make required payments as they fall due? * Asset management: Do we have the right amount of assets for the level of sales? * Debt management: Do we have the right mix of debt and equity...
Limitations of Ratios used for analysis: 1. Inflation will distort a firm’s balance sheet and a trend analysis may not give a true picture of the firm’s financial performance. 2. Different fiscal year, example, a firm may have a fiscal year that ends on June 30, whereas another company in the same...
"If you are going to achieve excellence in big things, you develop the habit in little matters. Excellence is not an exception, it is a prevailing attitude." --Charles R. Swindoll Please use this template to produce the Bi-MTRs by filling the spaces provided. This should be submitted by the 28 th ...
As the result of the ratio analysis. There are 5 limitations of ratio analysis as well. The first limitation of the ratio analysis is Comparing the ratios between two organizations/firms is a smooth path to do it. This is because, different organization/firms might have face unequal figures of earnings...
FINANCIAL STATEMENTS Accrual-based approach – revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash Cash flow approach – used by financial professionals to focus attention on current and prospective inflows and outflows of...
1. Current Ratio- the current ratio is current assets divided by current liabilities. In the data from 2002 in Appendix D the current assets equal $104,296.00 and the current liabilities equal $139,017.00 the current ratio equals 0.75. 2. Long –term solvency ratio- the formula used for long term solvency...
FINANCIAL RATIOS Gross Profit to Sales (Gross Profit Ratio): profitability ratio that shows the relationship between gross profit and total net sales revenue. Gross margin/Net sales The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of...
Financial Ratios Financial Management Current Ratio Current Ratio = Current Assets $104,296.00 0.75 Current Liabilities $139,017.00 Long-Term Solvency Ratio Long-Term Solvency Rate = Total...
Profitability Ratios: 1. Profit Margin = (PAT/Sales)*100 * The profit margin for 2012 is 2.41% and for 2011 is 2.03%. * In 2011-12, the profit after tax increased by 47.70% to 1027.69 Lakhs compared to 695.79 Lakhs in 2010-11. 2. Asset Turnover = Sales/Average Total Assets * In...
decrease. These changes would also cause the WACC to decrease (see exhibit 4d). Part E: O’Grady Apparel company is currently using a Constant-Payout-Ratio Dividend policy. The existing policy is not suitable for the firm’s expansion and available investment opportunities to them. Currently, the firm is...
profitability focus on measuring the adequacy of income by comparing it to other items reported on the financial statements. 1) Return on Equity: One of the most important profitability ratios is return on equity (ROE). ROE is the amount of net income returned as a percentage of shareholders equity...
The income statement has some limitations since it reflects accounting principles. For example, a company's depreciation expense is based on the cost of the assets it has acquired and is using in its business. The resulting depreciation expense may not be a good indicator of the economic value of the...
The Virtues of “Price Gouging” David W. Meyer1 Price gouging is a term that is often used, but difficult to define. A cynic may define it as a price that is higher than a consumer wants to pay, but usually, price gouging refers to a rapid increase in prices after some type of demand or supply shock...
Uses of financial ratios One of the most widely used forms of financial analysis is the use of ratios. They can provide data that is useful for investment decisions. They can also help internal management of an organization gain an awareness of their company's strengths and weaknesses. And, if we...
Question 3 (a) The three rules of deductibility that a taxpayer must satisfy before a claim for deduction is given for tax purposes are to satisfy the general deduction test under [S 33(1) of the Income Tax Act 1967]. Under the general deduction test the business expenses have to fulfil all the following...
FINANCIAL RATIOS LIQUIDITY RATIOS Current Ratio: = current assets / current liabilities ▪ The higher the ratio, the greater the "cushion" between current obligations and a firm's ability to meet them. ▪ Use: An indication of a company's ability to meet short-term debt obligations; the...
Liquidity ratios are the measure of how company pays its short term obligations and to meet the needs of the cash. The simplest ratio is the current ratio. This ratio expresses the relationship between current assets and current liabilities. The comparison of the ratio shows that for both 2009 and...
Business Ratio Why Look Ratios ? Enables us to uncover relationships between financial statement items/Helps us identify, evaluate, interpret changes in financial performance over a period of time/needed for future decisision-making. Ratio Analysis: Profitability, Efficiency, Liquidity, Stability...