Financial Ratios Have Proven To Be A Useful Tool For Effective

1365 WordsFeb 27, 20176 Pages
Financial ratios have proven to be a useful tool for effective financial management and planning. Primarily known for improving the understanding of financial results and trends over time, financial ratios are a unique way to provide a quantitative analysis to communicate overall organizational performance. This tool is useful for managers to focus in on the company’s strengths and weaknesses from which strategies and operations can be formed. Investors are also commonly known to use ratios to measure results against other companies to make appropriate judgments regarding management effectiveness and mission impact. For ratios to be deemed meaningful and useful, they require reliable and accurate calculated information. This is simple…show more content…
2016 current ratio would also indicate an increase of $0.45 from 2015’s current asset to liabilities ratio. The second ratio (often viewed as more conservative than the current ratio) used to calculate the liquidity of Starbucks was Cash Assets. A short-term creditor may be extremely interested in this ratio because it measures cash over current liabilities. After the calculation was performed, records indicate $0.47 in cash assets for every $1 in total liabilities. Cash assets also proved to have a $0.05 increase in cash assets from the previous year of 2015. The trend of Starbucks represents, in short, that Starbucks current ratio deteriorated from 2015 to 2016, and their cash assets slightly improved from 2015 to 2016. SOLVENCY Solvency is another word for debt management when discussing financial statements. Simply put, ratios used in a solvent manner, measures a company’s ability to meet its obligations or its financial leverage. Companies are encouraged to be mindful of their financial leverage ratios as to keep their financial risk at an acceptable level (2014, pp. 512). When performed correctly, a business will have a favorable outcome as they make preparations to seek loans from financial institutions. Common ratios used include debit to equity and equity
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