Understanding And Interpreting Financial Data

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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. …

Introduction

Understanding And Interpreting Financial Data

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. We will look at Inventory Turnover, Receivables Turnover, Average Collection Period and Fixed Asset Turnover.

This assesses the financial risk of Bravo Ltd. A high gearing ratio poses risks if Bravo Ltd is unable to meet its financial obligations as this can very well lead to bankruptcy. Therefore, it is important that this is constantly monitored. The ratio is used is Debt to Equity Ratio.

Our findings show that Bravo Ltd has a good Liquidity Ratio. ...
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