Q.1 Financial Statement Analysis, specifically Ratio Analysis is often performed by managers, investors, and creditors. What is the primary goal of each of these groups when evaluating ratios?
Q.2 Write reply for this discussions(Andrew)
Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time, and provide key indicators of organizational performance. Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can be formed. Funders may use ratio analysis to measure your results against other organizations or make judgments concerning management effectiveness and mission impact.
For ratios to be useful and meaningful, they must be:
• Calculated using reliable, accurate financial information (does your financial information reflect your true cost picture?)
• Calculated consistently from period to period
• Used in comparison to internal benchmarks and goals
• Used in comparison to other companies in your industry
• Viewed both at a single point in time and as an indication of broad trends and issues over time
• Carefully interpreted in the proper context, considering there are many other important factors and indicators involved in assessing performance.
Ratios can be divided into four major categories:
• Profitability Sustainability
• Operational Efficiency
• Liquidity
• Leverage (Funding – Debt, Equity, Grants)
The ratios presented below represent some of the standard ratios used in business practice and are provided as guidelines. Not all these ratios will provide the information you need to support your particular decisions and strategies. You can also develop your own ratios and indicators based on what you consider important and meaningful to your organization and stakeholders.
“Financial Ratio Analysis.” Financial Ratio Analysis | Demonstrating Value, https://www.demonstratingvalue.org/resources/financial-ratio-analysis.