Business Analysis : Kier Group Plc

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

Ratio analysis is the method used to calculate and interpret financial ratios to analyze and monitor the firm’s performance.

Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities.

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

“The use of ratio analysis is rather like solving a mystery in which each clue leads to a new area of inquiry” (2005, Block & Hirt, p. 55, chap. 3). These ratios help to make pro forma determinations for future years. The first step to making any predictions is to review the current year and past year ratios, making comparisons and determining areas of strengths and weaknesses. Larger companies may require a review of the past five-year’s ratios to obtain detailed analyses of these areas. For this review, we are concentrating on the years 2007 and 2006 and have prepared the following rations for review:

There is a essential use and limitations of financial ratio analysis, One must keep in mind the following issues when using financial ratios: One of the most important reasons for using financial ratio analysis is comparability and for this, a reference point is required. Usually, financial ratios are compared to historical ratios of the business itself, competitor’s financial ratios or the overall ratios of the industry in question. Performance may be adjudged as against organizational goals or forecasts. A number of ratios must be analyzed together to get a true and reliable picture of the financial performance of the business. Relying on each ratio

Ratio analysis is a very powerful method of analyzing the status of a company by manipulating the audited financial statements. They are a yardstick of doing a performance evaluation of the firm’s financial condition. A deeper understanding of the ratios by an investor offers them more knowledge on the working of the firm and the best investment they can undertake. The financial ratio gives a relationship of two or more accounting variables through arithmetical expressions (Beck, 2009). They offer a standard for comparison of firms’ growth and performance as well as with competitors, more so, they offer the firm a clean bill of health.

Ratio analysis will be used to measure the profitability, liquidity and efficiency of the named business and to analyse the performance of the business using ratio analysis.

Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,

(3) Ratios lack of standard definitions,some financial ratios can be explained by different ways from different accountants ,thus it is a barrier to compare ratio specifically and efficiently.

The calculation of ratios is the calculation technique for analyzing a company’s financial performance that divides or standardize one accounting measure by another economically relevant measure. Financial ratios can be used as a tool to demonstrate financial statement users for making valid comparisons of firm operating performance, over time for the same firm and between comparable companies. External investors are mostly interested in gaining insights about a firm’s profitability, asset management, liquidity, and solvency.

The financial data of company does not tell us the entire position of an organisation and its performance over the year or certain period of time for comparative purposes. Therefore, the use of ratios

Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.

Ratio analysis is an important tool used for measuring performance of a business entity. It does so by comparing entries in the balance sheet with entries in income statement. They can be used by the management to determine whether the company is able to meet its short term financial obligations by carrying out liquidity ratios. They also help to evaluate a company’s performance over time and to compare the firm’s performance with that of individual competitors in the same industry.