The writing assignment will demonstrate writing across the curriculum by responding to the following topic in a 4 to 5 page paper. Your paper must include at least five external scholarly journal references. You are also required to create a PowerPoint presentation containing at least 7-slides with audio.

The writing assignment will demonstrate writing across the curriculum by responding to the following topic in a 4 to 5 page paper. Your paper must include at least five external scholarly journal references. You are also required to create a PowerPoint presentation containing at least 7-slides with audio. A Word file as been added to the assignment to show you how to add audio to your PPT slides.

Topic: Discuss the purpose and importance of financial ratios and financial analysis. What are the limitations of financial ratio analysis? If we divided the users of financial ratios, such as short-term lenders, long-term lenders, and stockholders, which ratios would each prefer and why? Provide examples.

 

 

answer:

Financial Analysis and financial ratios are calculated basically to know the financial condition of the companies, to compare the financial results of the companies to its contemporaries.These analysis are also done to before making any decisions which are important for stakeholders. It basically concludes the overall performance of the business/ company.

Limitations of financial ratio analysis are such as 1) Ratios some time dont tell the entire story about the company such as in any year the company took major loans for expansion and this will screw up the current ratio but the expansion aspect is not included in the ratio. 2) ratios are quantitative and thus excludes qualitative aspect of a fiem. 3) Not always fit for comparability since many companies have their own conditions applied to the their ratios and this becomes an obstacle for computing the financial ratios. 4) Rate of inflation is another issue while comparing the numbers 5) Companies policies regarding the accounting also affects the ratio annalysis and its intepretation.

Short term lenders would be more interested to know about the companies current ratio , quick ratio so that they can get back their money in short notice. Long term lenders would be more interested in Interest earning ratio, debt equity ratios, ROI etc, shareholders will be interested in EPS, Profitability ratio, ROE, ROCE, P/E ratio, Dividend payout ratio.

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