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INTRODUCTION
The major financial statements of a company are the balance sheet, income
statement and cash flow statement (statement of sources and applications of
funds). These statements present an overview of the financial position of a
firm to both the stakeholders and the management of the firm. But unless the
information provided by these statements is analyzed and interpreted
systematically, the true financial position of the firm cannot be understood.
The analysis of financial statements plays an important role in determining
the financial strengths and weaknesses of a company relative to that of other
companies in the same industry. The analysis also reveals whether the
company's financial position has been improving or deteriorating over time.
Meaning of Ratio:
Profitability Ratios
Acid test:
An ideal quick ratio is said to be 1:1. If it is more, it is
considered to be better. This ratio is a better test of short-
term financial position of the company.
Profitability Ratios
Its include
ROCE
Return on capital employed is a key element in indicating a company
performance. Is the return the company is making form its long term capital
investment before interest and tax? It could be compared to the interest that
would be received if the money is to be invested in the bank.
Example: the ROCE going down indicate that the company is earning less
from the capital it has invested into the business.
Is the percentage profit the company is making form the sales after it has
paid for the goods? This ratio measures the relationship between gross profit
and sales. This ratio shows the profit that remains after the manufacturing
costs have been met. It measures the efficiency of production as well as
pricing.
Net profit PROFIT MARGIN
Operating expenses
Significance:
Acid test
CONCLUSION