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14 Presentation of published financial statements (2)
- Bu sahifa navigatsiya:
- Calculation and interpretation of accounting ratios and trends
- Introduction This chapter looks at interpretation of accounts.
- Intellectual level C2
- FAST FORWARD ) The broad categories of ratio You must be able to appraise and communicate
- Try not to be too mechanical
336 18: Earnings per share I Financial Reporting BPP LEARNING MEDIA Calculation and interpretation of accounting ratios and trends
Introduction This chapter looks at interpretation of accounts. We deal here with the calculation of ratios, how they can be analysed and interpreted, and how the results should be presented to management. Study guide
FAST FORWARD ) The broad categories of ratio You must be able to appraise and communicate the position and prospects of a business based on given and prepared statements and ratios. If you were to look at a statement of financial position or statement of profit or loss and other comprehensive income, how would you decide whether the company was doing well or badly? Or whether it was financially strong or financially vulnerable? And what would you be looking at in the figures to help you to make your judgement? Ratio analysis involves comparing one figure against another to produce a ratio, and assessing whether the ratio indicates a weakness or strength in the company's affairs. The broad categories of ratios Broadly speaking, basic ratios can be grouped into five categories: Profitability and return Long-term solvency and stability Short-term solvency and liquidity Efficiency (turnover ratios) Shareholders' investment ratios Within each heading we will identify a number of standard measures or ratios that are normally calculated and generally accepted as meaningful indicators. One must stress however that each individual business must be considered separately, and a ratio that is meaningful for a manufacturing company may be completely meaningless for a financial institution. Try not to be too mechanical when working out ratios and constantly think about what you are trying to achieve. The key to obtaining meaningful information from ratio analysis is comparison. This may involve comparing ratios over time within the same business to establish whether things are improving or declining, and comparing ratios between similar businesses to see whether the company you are analysing is better or worse than average within its specific business sector. It must be stressed that ratio analysis on its own is not sufficient for interpreting company accounts, and that there are other items of information which should be looked at, for example: The content of any accompanying commentary on the accounts and other statements The age and nature of the company's assets Download 0.93 Mb. Do'stlaringiz bilan baham: 
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