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Introduction to Business Accounting
Finance & Accounting
Pages 5 (1255 words)
Introduction to Business Accounting [Student Name] [Course Title] [Instructor Name] [Date] Introduction to Business Accounting Profit and Loss Account Dave Brown Year ended 31December 2011 Sales 190,200 less cost of goods sold opening stock 21,000 +purchases 84,300 - closing stock 70,000 35,300 Gross profit 154,900 less expenses Advertising 1,650 Wages and salaries 42,000 Insurance 1,300 Heating and Lighting 1,800 General Expenses 13,450 Change in provision 700 Depreciation: Motor Vehicles 5,000 Depreciation: Computers 3,500 69,400 Net profit 85,500 Balance Sheet Dave Brown 31-Dec-11 Historic cost Acc.
Financial ratio analysis is one of the most commonly used method for evaluating and comparing company's performance over a period of time however it has major limitations which undermine its use and value of results produced by it (Moyer and McGuigan 2012). Firstly, the financial data that is used for calculating different ratios is historic that implies that the financial ratio analysis provides findings regarding the company's past performance which may not have relevance to the business's current position. This restricts analysts from using the results of the financial ratio analysis for predicting the future of the business and company that is operating it. Secondly, there are different ways of calculating same ratios, which makes the comparison difficult, and interpretation is subjective too (Wiley 1998). ...
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