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Understanding and interpreting financial data
Finance & Accounting
Pages 4 (1004 words)
The vast competition and globalization that businesses face today means necessary steps to ensure continuous growth must be put in place. One method of doing this is the analysis of financial ratios. …
The vast competition and globalization that businesses face today means necessary steps to ensure continuous growth must be put in place. One method of doing this is the analysis of financial ratios. In this case, Bravo Ltd can obtain financial ratios using their latest financial statements and comparing the results with a competing business within the same industry. Alternatively, a business with the best business practice and a good track record is chosen as a benchmark for Bravo Ltd's improvement.It is a tool for interpreting the financial statements to assess financial and management performance. There are several types of financial ratios available that will benefit Bravo Ltd: Liquidity Ratios, Asset Management Ratios, Profitability Ratios and Gearing Ratios. Each ratio is measured differently and used according to the necessary analysis needed.
This measures the ability of Bravo Ltd to meet its short-term financial liabilities as they fall due. It is of particular interest if Bravo Ltd wishes to extend its short-term credit facilities. There are two kinds of Liquidity Ratio - Current Ratio and Quick Ratio.Stocks are excluded in the calculation because stocks may include items that have uncertain liquidation values. Ideally, a ratio of 2 is considered safe for the former while a ratio below 1 is recommended for the latter.This measures how well Bravo Ltd utilizes its assets for the benefit of its business. Having a sound ratio will ensure that Bravo Ltd is better received by would-be investors. ...
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