Usefulness And Limitations Of Financial Ratios

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Usefulness and limitations of financial ratios in evaluating the performance and management of companies Ratio analysis is used to describe the important relationship that lies between figures based on line items in financial statements like the balance sheet, profit and loss account, and a budgetary control organization. Ratio analysis is a technique of analysis and interpretation of financial statements. It helps in evaluating the financial position and performance of the firm, ratio analysis also allows firms to compare their operational or financial performance to another firm or the industry standard. This essay will firstly discuss the purpose of financial ratios, its users and how it is applied. It will then move on to discuss the signification and limitations of ratio analysis. Furthermore, a discussion about the usefulness of specific ratios will be held using the 2013 annual report of easy jet. Lastly, my own views on the issues of financial statements, specifically financial ratios will be presented. With the help of financial statements that arise by the firm, analytical methods can be used to get information about the course of the business and the economic state. By calculating a small number of ratios it is possible to develop a clear picture of the position and performance of a firm (P.Atrill and E.Mclaney 2013). Financial ratios have two main users, management and inventors. Management uses financial ratios to analyse, control and determine the
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