Financial ratios
To get a clear view of a company financial position, we have to analyze the company’s financial statement written in the annual report of the company of which are: 1. Balance Sheet Statement (or, Statement of Financial Position). A financial statement that presents a firm’s assets, liabilities, and equity at a particular point of time. ... A financial statement that discloses the changes in the retained earnings accounts during an accounting period. ... A financial statement that discloses the changes in the stakeholders’ equity accounts maintained by a business. ... A financial statement viewing the amount of cash a company generated and used during a period through its operating, investing and financing activities. ... An annual report cannot be considered as what the company financial performance said it had been. ... Therefore, doing a thorough Financial Ratio Analysis is a must. ... FINANCIAL RATIO ANALYSIS Financial Ratio Analysis is used to put the performance of a firm into some sort of context. ... Calculate ratios so that performance can be compared against previous years, preferably from 3 to 5 years to give a reasonable historical trend, or against industry norms. Below are the used ratios to generate the calculation: 1. ... The ability of a firm to meet its short term financial obligations as they fall due. The higher the ratios, the higher the liquidity position of the firm. The ratios are: a. Current Ratios current asset current liabilities b. Quick Ratios current asset - inventories current liabilities 2. ... The higher the ratios, the higher the proportion of assets financed by non-shareholder parties. The ratios are: a. Capital Gearing Ratios non-current liabilities non-current liabilities + shareholders equity b. Debt To Equity Ratios total liabilities total shareholders equity 3. ... The higher the ratios, the greater the ability to service interest payments to external parties. The ratios are: operating income divided by annual interest payment and cash flow from operation divided by annual interest payment. ... The higher the ratios, the more profitable the firm. The ratios are: a. ... Return On Equity Ratios. Known as the Return On Capital Employed Ratios, it measures the efficiency with which common shareholders’ equity is being employed in the firm.