The Role of Financial Ratios
The Role of Financial Ratios
Table of content
Introduction 3
Chapter 1. Notion and types of ratios. 4
1.1 Liquidity ratios. 5
1.2 Financial leverage ratios 7
1.3 Funds management ratios 9
1.4 Profitability ratios 12
Chapter 2. Use of financial ratios. 15
2.1Use and Limitations of Financial Ratios 15
2.2 Used financial data 15
2.3 Financial ratios calculated for The Apple Company 16
2.4 The Dupont Model 18
Appendix 1 21
Conclusion 23
Bibliography 24
Introduction
I have chosen this topic for my coursework because I find ratio analysis the most common way to evaluate the performance of an enterprise and its interest for investor. As in future I plan to work in a financial department, this analysis was of great interest for me.
Financial analysis helps to answer many important questions like what was the performance of the enterprise, is it profitable to give loan to a client, will the share price increase in the nearest future and so on. And financial ratios are the most efficient and the easiest source of information for such analysis.
From dozens of various financial ratios I have chosen the most widespread and common, analysed them in accordance with their meaning and use. I presented equations for calculations of financial ratios and worked out the procedure using the example of Apple Company. I have also found information about recommended value for some of these ratios.
The results of my work are presented in this paper.
Chapter 1. Notion and types of ratios.
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios
Table of content
Introduction 3
Chapter 1. Notion and types of ratios. 4
1.1 Liquidity ratios. 5
1.2 Financial leverage ratios 7
1.3 Funds management ratios 9
1.4 Profitability ratios 12
Chapter 2. Use of financial ratios. 15
2.1Use and Limitations of Financial Ratios 15
2.2 Used financial data 15
2.3 Financial ratios calculated for The Apple Company 16
2.4 The Dupont Model 18
Appendix 1 21
Conclusion 23
Bibliography 24
Introduction
I have chosen this topic for my coursework because I find ratio analysis the most common way to evaluate the performance of an enterprise and its interest for investor. As in future I plan to work in a financial department, this analysis was of great interest for me.
Financial analysis helps to answer many important questions like what was the performance of the enterprise, is it profitable to give loan to a client, will the share price increase in the nearest future and so on. And financial ratios are the most efficient and the easiest source of information for such analysis.
From dozens of various financial ratios I have chosen the most widespread and common, analysed them in accordance with their meaning and use. I presented equations for calculations of financial ratios and worked out the procedure using the example of Apple Company. I have also found information about recommended value for some of these ratios.
The results of my work are presented in this paper.
Chapter 1. Notion and types of ratios.
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios
Bibliography: 1. Brigham, Eugene F. and Joel F. Houston. Fundamentals of Financial Management, Ninth Edition, Harcourt College Publishers, Fort Worth, 2001. 2 3. Susan M Mangiero WHY THE DUPONT MODEL IS IMPORTANT, Valuation Strategies, Proquest ABI/INFORM, 2004 4 5. Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello Financial & Managerial Accounting, McGraw-Hill Irwin, 2008.