Advantages of Financial Ratio Analysis

Financial ratio analysis is a tool used by accountants and managers to simplify the financial statements. Some advantages of financial ratio analysis mentioned in Financial Ratio Analysis Assignment Help are given below:  –

• One of the main advantages of financial ratio analysis is that it helps to compare the financial statements of two or more companies.
• It also helps the company by evaluating the trend analysis of a single company over a specific period of time.
• It helps in forecasting future business activities and so the management can plan accordingly.
• Budgeting is one of the main objectives achieved by financial ratio analysis. Financial ratios are used to estimate the company’s budgeted figures.
• Financial ratio analysis plays a vital role in inter-firm comparison. This comparison is carried out by using different financial ratios.
• It indicates the overall profitability of the firm and also its ability to meet the short-term and long-term obligations to its investors, creditors, etc.
• It simplifies the financial statement and makes it easy for the users to understand and grasp the information.

Limitations of Financial Ratio Analysis:

Along with many advantages, there are some limitations of financial ratio analysis. The limitations of financial ratio analysis highlighted in Financial Ratio Analysis Assignment Help are given below: –

• The limitations in the financial statements often affect the financial ratio analysis and it is one of its major disadvantages.
• It only explains information regarding the past and users are usually interested to know more about a current and future situation.
• Companies have their own accounting policies and it might affect the comparison of accounting data and accounting ratios of two or more companies. Accounting policies such as charging depreciation, valuation of inventories, etc. differ from company to company.
• While computing the financial ratios, an only quantitative analysis is highlighted while the qualitative factors are ignored.

Related Post:  Types of Financial Ratios in Financial Ratio Analysis

Types of Financial Ratios in Financial Ratio Analysis

The process of calculating financial ratios in order to compare two or more businesses is known as financial ratio analysis. This analysis tool compares the financial statements of different companies and gives the result. The different types of financial ratios explained in Financial Ratio Analysis Assignment Help are listed below: –

Liquidity Ratios- Some important liquidity ratios are- acid test ratio, current ratio, cash ratio and cash conversion cycle. Acid test ratio is also known as a quick ratio because it uses quick assets of a company to determine that company’s ability to pay short-term obligations. Current ratios make use of current assets to determine the ability of the company to pay short-term obligations.

Profitability Ratios- Some important profitability ratios include gross profit margin, net profit margin, return on assets, operating profit margin, return on equity, earnings per share and return on capital employed. These ratios are used to measure the profit that a business can earn for its owners.

Leverage Ratios-Different types of leverage ratios are- equity ratio, debt ratio, times interest earned and debt-equity ratio. Leverage ratios are used to determine the ability of a company to pay its long-term debt.

Management Efficiency Ratios- Important management efficiency ratios are- inventory turnover, accounts payable turnover, receivable turnover, days payable outstanding, days inventory outstanding, total asset turnover, operating cycle, etc. These ratios are used to evaluate how a company is using its assets and liabilities.

Topics covered under Marketing Management Assignment:

At Marketing Management Assignment, our experts have given their best to cover all the topics related to marketing management. Some of these topics are discussed below: –

Brand Management- A brand is the representation of the company’s position and identity and it could include design, logo, merchandise and other feature as well. Thus, the handling and management of all the characteristics of a brand are known as brand management. It is an important concept studied in marketing management.

Customer Relationship Management-It is a strategy followed by many companies to manage and strengthen relationships with the customer. It is used for productivity, sales management, contact management, etc. It can be improved by spreading awareness, providing exciting offers and asking for feedback from the existing customers. To know more about marketing management, please refer our website.

Pricing Management-It involves a strategy that helps the management to arrive at optimal pricing decisions. The management of this strategy is known as pricing management. This task is carried out by the marketing managers. Various pricing strategies include economy pricing, premium pricing, skimming strategy and penetration pricing.

Product Management- It is an important concept covered under marketing management studies. It can be defined as a management structure that manages and handles all the activities related to manufacturing, developing, advertising and selling of a product. It deals with a product which comprises of both goods and services. Various levels of product are- core product, basic product, expected product, augmented product and potential product.

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