Financial Management

FINANCIAL MANAGEMENT

Table of Contents

Introduction .3

Uses of ratios .3

Profitability ratios .3

Liquidity ratios .3

Financial ratios .4

Pros and cons of ratios .4

Conclusion .5

Bibliography .6

INTRODUCTION

The financial statements of any company provide quantitative insight of the performance of the company . Although all these figures are very important they do not give a detailed review of the company 's overall performance . Therefore , the accounting ratios are used to do a detailed analysis of the performance

of the company . For the purpose of analysis of company 's performance such accounting ratios are compared with those of prior years or with industry averages

USES OF RATIOS

Profitability Ratios

The progress of a company can be measured from its profitability . The figures of gross profit and net profit are not very significant unless expressed as a percentage of sales . The relation between gross and net profit can be used to determine how effectively the company 's management is controlling its operating costs . Moreover , return on capital employed determines the efficiency and effectiveness of the management in using its available resources . Return on capital employed is helps analyze better when used for comparing a company with industry averages instead of the analysis of a company over a period (www .accaglobal .com /archives /sa_oldarticles

Liquidity Ratios

Liquidity ratios assess the cash flow position of a company . For this purpose current ratio and acid test ratio is used . Current ratio tells how many current assets the company has to deal with...