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Ratio and Financial Ratio Analyisis

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Submitted By Hogan021811
Words 1722
Pages 7
Ratio and Financial Statements Analysis
Kimberly Y. Gruber
University of Maryland University College
Dr. Sunando Sengupta
07/25/2013
Turnitin Score: 23%

Executive Summary
The purpose of this paper is to examine ratio and financial statement analysis. Such analysis is a useful tool for managers and stakeholders to evaluate a company’s financial health in order to identify opportunities for growth and areas of weakness so as to institute corrective measures. Financial statements are used in order to predict trends of cash flow within the business as well as predict the potential of a business and if they are capable of financial growth. Ratio analysis examines the probability of a company’s profit or a company’s loss. This paper will examine the benefits and limitations of ratio analysis, explain what factors impact the meaningfulness of such measures and what new practices or theories may be emerging regarding the application of ratio and financial statement. The paper concludes that ratio and financial statements is an essential tool used in analyzing a company’s profit.

Introduction to Ratio and Financial Statement Analysis
Though there are various methods for monitoring the liquidity of businesses the most common has been the use of financial ratios. Ratio analysis is an established technique—involving the relationship between two or more variables--that is used to conduct qualitative analysis of information contained in a company’s financial statement to evaluate both current company performance and attempt to predict future performance. The process begins by acquiring the company’s annual financial statement reports (balance sheets, income statements, statement of cash flows and statement of retained earnings) spanning several years in order to indicate a pattern of success or failure. Additionally, all notes and/or supplement materials that

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