How can financial statement analysis be used to assist management in their evaluation? Discuss the different...

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Finance

How can financial statement analysis be used to assistmanagement in their evaluation? Discuss the different ratios thatexist and how they differ from each other.

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Financial Ratios Help assess the risk and return of companies comparison within a industry at a particular point of time provide a profile of the firm economic characteristics competitive strategies depict unique operating financial and investing characteristics Broad categories of Ratios Profitability Long term solvency Activity Efficiency Short term solvency Liquidity Valuation IProfitability Analysis Ability to generate and maintain profitability Two dimensions wrt Sales i Gross Profit margin ii Net Profit margin iii EBIT margin wrt Investment i Return on Capital Employed ROCE ROTC ii Return on equity ROE iii Return on Total Assets ROA 1 Gross Profit margin Gross Profit 100 Sales 2 Net profit margin PAT 100 Sales 3 EBIT Margin EBIT 100 Sales 4 Operating Profit Margin Operating profit 100 Sales These ratios measures profit in relation to Sales 5ROI ROCE EBIT 1t Total capital employed 6ROERONW PAT Preference dividend 100 Net worth ESHs Fund 7 ROA EBIT 1t 100 Average Total Assets These ratios measures the profit in relation to capital investments It is the ultimate measure of the companys overall performance and productivity of capital employed Long term solvency Analysis The ability of a company to meet its long term obligations primarily debt It evaluates the risk borne by the firm Debt ratio Debt to Equity Net See Answer

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