Accounting Ratio And The Financial Performance

1755 Words Aug 31st, 2015 8 Pages
The purpose of Accounting Ratio is to measure the financial performance as this will help the business to determine whether they are making profit by analysing the progress. Business will also be able to manage their resources properly because this will indicate on whether they will be able to pay their Creditors as they have done the analysis of Accounting Ratio. Accounting Ratio gives the opportunity to compare their financial information with other business to see if they are performing better than their competitors. Accounting ratios can only be analysed if the business have the figures from Profit and Loss Account and Balance Sheet because all the calculation is calculated separately. There are three types of Accounting Ratio: Profitability Ratio, Liquidity Ratios and Efficiency Ratio. The connection between the financial accounts helps the investors, creditors and the business to know how well they are performing and if they are not performing on that standard require then the business will be able to make the improvement at early stage.

The advantage of Accounting Ratio is that this will help the business to analyse their performance and if they are not performing well then ratio analysis will indicate the problem they are facing. The business will be able to compare the information with other businesses in term on how well they are performing where this will help them see the strengths and weaknesses. If the business know the weaker performance then the owner will…
Open Document