Unit 2 P7

Topics: Financial ratios, Generally Accepted Accounting Principles, Asset Pages: 3 (2479 words) Published: April 23, 2015
Unit 2- P7
Ratio analysis is a tool brought by individuals used to evaluate analysis of information in the financial statements of a business. The ratio analysis forms an essential part of the financial analysis which is a vital part in the business planning. There are 3 different ways of assessing businesses performance and these are: solvency, profitability and performance. Ratio analysis assists managers to work out the production of the company by figuring the profitability ratios. Also, the management can evaluate their revenues to check if their productivity. Thus, probability ratios are helpful to the company in evaluating its performance based on current earning. By measuring the solvency ratio, the companies are able to keep an eye on the correlation between the assets and the liabilities. If, in any case, the liabilities exceed the assets, the company is able to know its financial position. This is helpful in case they wish to set up a plan for loan repayment. Ratio analysis is also helpful in analysing the performance of a company. Through financial analysis, companies can review their performance in the past years. This is also helpful in identifying their weaknesses and improving on them. Polish Fine Foods needs to use ratio analysis because it is a valuable tool for the business’s management to determine the performance of a business and to control the cost measures when necessary. Also, ratio analysis helps them monitor and identify issues that can be highlighted and resolved. However, ratio analysis doesn’t take into account external factors such as a worldwide recession. Measuring the Solvency of Polish Fine Foods

Now, I will use 2 rations to measure the solvency of Polish Fine Foods. First, I will calculate the current ratio for Polish Fine Foods. This estimates whether the business can pay debts due within one year from assets that it expects to turn into cash within that year. It is measured dividing current assets by the current...
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