Measuring Performance Of A Business Entity

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

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

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 is a type of Financial Statement Analysis that is utilized to achieve a quick indication of a firm's financial performance in numerous key regions. Financial ratios aid in deciding the connection between two variables in the financial statements. The data necessary for the computation of the ratios is supplied by the financial statements of the firm. Areas where performance has improved or deteriorated over time can be recognized this way. Ratios are utilized methodically to deduce the strengths and weaknesses of a firm and also its historical performance and current financial conditions.

Ratio is a useful measuring tool as a part of financial statement analysis. It usually categorized as three kinds that named liquidity ratio, solvency ratio and profitability ratio, each ratio assist in valuing the efficiency and profitability of a company based on its annual financial report.

Ratio analysis with information from financial statements, cash flow statement and income statements provide investors and managers insight for company performance, issues, and efficiency. In other words, the intent of ratio analysis is to determine the financial position and financial trends of an organization (Andrijasevic, & Pasic, 2014). By analyzing the ratios, a manager can determine liquidity and solvency of the organization. Liquidity is the available resources that are cash or rapidly converted to cash. When something is “liquid,” the asset can be easily used for buying or selling, thus the utmost liquid asset is cash. Solvency refers to the organizations assets versus liabilities. Organizations that have solvency accrue profits that exceed their liabilities, thus a higher probability of covering the liabilities. However, a company that is high in

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.

As the ratio analysis is a fundamental necessity of evaluation a firm’s financial and operational soundness and overall performance, the successive section is dealt with ratio analysis of the company. The meaning of the ratios used for

Ratios analysis is quantitative analyses of financial statements. They can generally be categorized into profitability, liquidity, gearing and valuation ratios (BBP- P3, 2014).

Ratio analysis is the most common form of financial analysis. It provides relative measures of the firm's conditions and performance.

Ratio Analysis is the form of analyzing the financial statements of a company on various aspects of its financial performance and operations such as profitability, liquidity, efficiency, investment and gearing. This analysis

It is usually preferred the ratio analysis for the following reasons according to Atrill and McLaney (2006). Firstly financial ratios can give a quick and comprehensible result for the health of a corporate. Secondly ratios are the simplest way of comparing the financial health of different firms. Thirdly the estimation of small number of ratios can give us the position and performance of a company. Also ratios can show the financial strengths and weaknesses of a company. In addition ratios in relation to who are going to use them can be expressed in various forms as a percentage or as a proportion.

Ratio Analysis is a powerful tool of financial analysis. The absolute figures that are reported in the financial statements do not provide an understanding of the financial well-being of the firm. Ratios help in creating a qualitative judgement about the financial position of the company by making use of quantitative relationships. The standards of comparison of the ratios involve comparing them with:

Ratio analysis is the best way of analysing the company’s financial wealth and position. It helps to understand the crucial financial figures of an entity pointing to weak and possibly risky parts of its finance. Using the results of the analysis managers can strengthen the financial position by determining and eliminating possible risks related to credits, operations and market fluctuations.

Ratio is one of several measurements to analyze the managing of the financial affairs of an organization. Ratio is simply relationship between two financial balances or the financial calculations. This relationship establishes organization’s references so business can understand how well they are performing financially. Thus, by applying ratio analysis to a set of financial statements, organization can better understand its financial performance.