The use of financial ratio is very common in accounting and finance process. These ratios are used for evaluation of a business performance, as well as identifying potential problems. Each ratio is used to inform about various factors like the solvency, earning power, and debt load of the business. These ratios measure the relationship arising between two or more modules of the financial statements and pose a greater meaning if the results are compared to industry standards of businesses with same size and activity.
There are various types of ratios including return or profitability ratios, which offer information regarding the management’s performance in the usage of resources. The other ratio example is liquidity ratio, which are used to demonstrate the business ability to pay its present obligations. This measures in short and long term views. The other ratio is the leverage, which examines the extent in which a company has depended on borrowing so that it can finance its operations. The other ratio is the efficiency ratio, which assesses the firm’s credit use, assets, and inventory (Libby, Libby, & Short, 2011).
Identifying the company using the exhibits
1 IT service provider
2 Retail grocery stores
3 Commercial airlines
4 Pharmaceutical preparations
5 Liquor producer and distributor
6 Mobile Phone service Providers
7 Semiconductor manufacturers
8 Computer software
9 Commercial banking
10 integrated Oil and gas
The use of ratios is a very important aspect for the firm. It helps in offering information regarding the managements performance in the usage of resources, demonstrating the business ability to pay its present obligations, examining the extent in which a company has depended on borrowing so that it can finance its operations, and assessing the firms credit use, assets, and inventory. This makes it possible to rate the company’s success.
Libby, R., Libby, P. A., & Short, D. G. (2011). Financial accounting. New York: McGraw-Hill/Irwin.
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