Financial Ratio Analysis

Before starting the analysis of the company, it is necessary to provide a complete set of financial statements, preferably for several years, in order to obtain historical trends. Ratio is a way for anyone to understand the financial performance of the company using the information contained in the financial statements. This ratio is divided into four basic categories: liquidity, activity, profitability, and financial leverage. In this document, as of December 31, 2000, we use these various ratios for analysis of company, sample company.

Financial ratio analysis will tell you about the business performance of our company. Some financial ratio analyzes have methods to help interpret financial statements, but their analysis is "... only when compared with other ratios." (Broadbent and Cullen, 1997, p. 55) The financial ratio is definitely a useful form of corporate performance analysis, but as shown below, there are limitations and problems. The ratio is a convenient technique to see the company's performance at a glance, but since it is based on financial statements, these depend on these qualities. However, because the quality of these financial statements is not guaranteed, the ratio may "... inherit the restrictions of the financial statements that form the basis of the financial statements." (Atrill and McLaney, 2004, p. 179)

Finance ratio is one of the most important tools for financial analysis. In financial ratio analysis, related information processed is mainly from financial statement data. This ratio is a mathematical relationship between the two quantities. In this case it is obtained from the financial statements. In general, by using financial ratios, investors can evaluate five aspects of performance and financial situation, including return on investment, liquidity, profitability, activity and financial leverage.

This paper demonstrates that financial ratio analysis is an important tool for estimating resources and their use. Financial ratio analysis is also an excellent tool, but it also shows that there are limits. In fact, we will examine the financial ratio by analyzing their limits and their advantages. Is it possible to estimate or evaluate the current and future performance of the company? The answer is yes but you need tools and you learn how to use them. Financial ratio analysis is an excellent tool for companies to evaluate their financial situation in order to identify weak points and take corrective action. The financial ratio is the first concern for administrators because they want to judge which department works well. This is also a concern for shareholders because they want to know the value of the stock.