Performance ratios - Why are these used?

[Robert_us]

Accounting and financial management have often been regarded as the most complex aspects of managing a business. The numbers are usually big, the formulae confusing and there are so many regulations. It is fine for the Director of Finance/CFO and his/her team but what about the other stakeholders, especially average investors and the managers actually running the show. How can they ensure that their investment is safe or their performance is in line with organizational goals?

[Ms_Margaret]

Performance ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements itself. These ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.

[Robert_us]

It's nice to talk about financial ratio. I have some details about financial ratio. Financial ratio is normally used to conduct a quantitative analysis of information in a company’s financial statements. Ratios are calculated by comparing the current year figures to previous years, other companies, the industry, or even the economy to judge the performance of the company. This is predominately used by proponents of fundamental analysis. If you don’t know how to evaluate the present performance of a company and its possible future performance, you should learn how to analyze ratios.

Ratio Analysis, being the basic tool of the strategic analysis, is extremely important for an organization to carry out its business planning.

• This analysis gives users a good understanding of how well the company utilized its resources in generating profit and shareholder value.

• It attempts to measure a company’s ability to pay off its short-term debt obligations.

• Used to determine the overall level of financial risk a company and its shareholders face.

• It helps to enrich financial health and performance of a company.