The organization I am going to talk about is J&K Outfitters Ltd. I will be explaining the advantages and the disadvantages of using ratio analyse within the business, by the help of using the ratio analyse it will show the financial performance of the business as it can help the investors to gain the inside health of the company.
Each ratio within the business plays a different prospective e.g. The stock turnover ratio shows you how quickly a company sells and replaces the stocks which are the goods and materials that a business holds for the purpose of resale. The advantage of using this stock turnover ratio will help the investors to make a decision on rather to invest in this business or no because it will show the health of the company. The other type of ratio I am going to talk about is the current ratio which provides the business amount of assets compared to its liabilities which shows the business ability to pay its debts. With the help of this ratio the investors get the idea of will they get their money back if they will invest in that business.
On the other side ratio fails to address the potential of the company as they only offer inside to the business present situation as it won’t give the future prediction of the business. For example, if the company is about to merge and acquire large amount of capital the ratio will not reveal these new changes therefore ratios cannot be the only measurements investors use to assess companies value, because this numbers do not reveal other key information such as industry changes and economy forces.
Another disadvantage I am going to talk about of using ratio is that some ratio might indicate the company is performing well while other indicates financial issues therefore investors need to assess multiple ratios to get the picture of the business stability which can help them to come to a conclusion rather to invest or not within that business. Ratios are beneficial to some parties however not to the other, such as a bank might not consider giving a help or interest to the companies’ book to market ratio however, the financial investors will evaluate its level of depth ratio to see if the company is worth of a loan.