abhishreshthaa
Abhijeet S
The key question in ratio analysis isn't only to get the right answer: for example, to be able to say that a business's profit is 10% of turnover. It means to say that profit is 10% of turnover.
We can use ratio analysis to try to tell us whether the business
1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor
And more, once we have decided what we want to know then we can decide which ratios we need to use to answer the question or solve the problem facing us.
There are ratios that will help us with question 1, but that wouldn't help us with question 2; and ratios that are good for question 5 but not for question 4 - we'll see!
We can use ratio analysis to try to tell us whether the business
1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor
And more, once we have decided what we want to know then we can decide which ratios we need to use to answer the question or solve the problem facing us.
There are ratios that will help us with question 1, but that wouldn't help us with question 2; and ratios that are good for question 5 but not for question 4 - we'll see!