Financial ratios and their implications along with their usage - Literature review Example

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Financial ratios and their implications along with their usage

This essay discusses that financial ratios have been used by firms around the world to analyse how one firm performs in comparison to the other firm as well as to analyse the performance of the firm over the period of years. Therefore management calculates and uses financial ratios to identify the performance gap of the firm against its own past performances as well as against the performance of competing firms in the industry. In addition to this, management uses to analyse the financial performance of the firm against the average financial ratios of the firms operating in the industry as well and then identify areas where the firm has not been performing up to the mark. Some organisations use the financial ratios for the purpose of benchmarking as well and they tend to set different targets for different kinds of financial ratios and then make efforts to achieve these financial ratios. For instance, a firm would like to achieve a profit margin of 20% and therefore in order to achieve this profit margin, the company would be making efforts to reduce the cost of the company or generate more sales so that costs is allocated to more sold units and targeted profit margin is achieved. Financial ratios are an important indicator about the performance of the firm and therefore it has been used not only by the management of the organisation but these financial ratios have also been used by investors, shareholders, suppliers, distributors and other stakeholders to analyse the financial performance of the company. ...
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The research study presents important theoretical concepts that would be used to answer the research questions of the study. In the literature review, important financial ratios and their implications along with their usage have been explained. …
Author : riley26

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