MUYENZI Financial Decision Making for Managers Spring 2011-2012 Ratio and Financial Statement Analysis Benefits and Limitations. Executive Summary This paper analyzes tools used in financial analysis such as ratios. Financial ratio analysis is a judicious way for different stakeholders to use for different goals. This paper demonstrates that financial ratio analysis is an important
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http://www.investopedia.com/university/ratios/liquidity-measurement/default.asp LIQUIDITY RATIOS: The first ratios we’ll take a look at in this tutorial are the liquidity ratios. Liquidity ratios attempt to measure a company’s ability to pay off its short-term debt obligations. This is done by comparing a company’s most liquid assets (or‚ those that can be easily converted to cash)‚ its short-term liabilities. In general‚ the greater the coverage of liquid assets to short-term liabilities the
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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. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The return on equity ratio is computed as follows: Return on Equity = | Net Income |
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The financial ratios are: Liquidity Ratio- The firms ability to satisfy the short term obligations. (Gitman‚ 2007) Activity ratio- That measure the speed with which various accounts are converted into sales or cash‚ inflows or outflows. (Gitman‚ 2007) Debt ratio- That measures the proportion of total assets financed by the firms creditors. (Gitman‚ 2007) Profitability ratio- measures enable the analyst to evaluate the firms profits with respect to a given level of sales a certain level of assets
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Interpreting Financial Results FIN/571 July 22‚ 2013 Interpreting Financial Results Liquidity: Current Ratio Parrino‚ Kidwell‚ & Bates (2012) detail the current ratio as current assets divided by liabilities. The current ratio identifies a firm’s potential to pay short-term liabilities; higher liquidity is a good sign for potential creditors (Parrino et al.‚ 2012). At the same time‚ however‚ the current ratio should not greatly exceed benchmarks of other competitors (Parrino et al.‚ 2012)
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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 higher the ratio‚ the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities
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process. It reduce the down time and wastage and reduce the time to market. Spectrics comprises four strategic segments which reflect the end user industries and application. They serve material analysis‚ test and measurement‚ industrial control and in line instrumentation segments. In material analysis they provide a spread range of analytical instrumentation to the industries of metals and mining‚ pharmaceutical and life sciences and semiconductor. The in line instrumentation segment they serve
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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 cash 1. Balance sheet a. Assets Cash and Cash Equivalents Marketable securities Accounts receivable Inventories Net property‚ plant and equipment Intangible assets b. Liabilities Accounts
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TABLE OF CONTENTS INTRODUCTION 3 MANAGERIAL FINANCE: 3 FINANCIAL STATEMENTS ANALYSIS: 3 RATIO ANALYSIS: 3 FAUJI CEMENT BALANCE SHEET AND PROFIT AND LOSS ACCOUNT 4 RATIO ANALYSIS: 9 INTRODUCTION MANAGERIAL FINANCE: • Managerial finance is concerned with the duties of the financial manager in the business firm. • The financial manager actively manages the financial affairs of any type of business‚ whether private or public‚ large or small‚ profit-seeking or not-for-profit
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Session 15: Limitation of Ratio Analysis Learning Objective Explain to the participants on the limitation of ratio analysis. Important Termss Creative accounting. Accounting Policies. Limitations of Ratios Accounting Information Different Accounting Policies The choices of accounting policies may distort inter company comparisons. Example IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost. The business may opt not to revalue
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