Ratio Analysis

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Ratio Analysis

  1. 1. Financial Analysis Chapter 47 (Wood and Sangster) When you have completed this chapter, you should be able to: • Explain how ratios can help to analyse profitability, liquidity, efficiency and capital structure • Calculate main accounting ratios • Interpret results of ratios • Explain advantages of low/high gearing • Explain how fixed/variable proportion of costs impacts profit at different activity levels • THE NEED FOR RATIOS – Without ratios, financial statements uninformative – e.g. how do we calculate ‘best’ profit? • HOW TO USE RATIOS – Compare like with like – Need very careful handling • USERS OF RATIOS – Many different parties 1

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