RATIO ANALYSIS

Ratio Analysis

Ratio Analysis

Introduction

The importance of financial information found in published accounts for a British firm

The importance of financial information that is published in the accounts for a British firm carries a lot of value. The reasons behind the importance of financial information will be explained in the following paragraphs. Financial information is information which is derived with the help of accounting calculations that is vital for the business management and development of the company. This is the reason why it is processed and stored in the set of documents to be used by the employees working in the company. The demand for this sort of information creates the possibility of preparing financial statements. The large data of financial information helps in forming the financial statements that presents the overall status of the company in numeric terms. The importance of financial information in this way is quite high because it used to construct a conclusion based on the financial performance of the company. The inclusion of this information and other useful data makes it easy for the user to conduct an evaluation regarding the future operations of the business and even taking vital economic decisions in a given situation (Grossman, 1980).

The basic form of financial statements should satisfy the purpose by reporting to the financial state of the company on a definite date. Secondly, it must leads towards the operations and changes which were carried out in the financial position in the entire accounting period that had its ending on a particular date. The creation of the financial statement has the major purpose of communicating the financial situation and to convey the reader about several perspectives or situation. The main task of financial information is to convey information which meets the demands of users. However, the information is shared by different users and it looks to serve various objectives (Miller, 1985, 1041). The description of the four main objectives will be carried out regarding the usage of financial information:

The decisions based on the investment and credit, the major users of this data are those people who have an ability to provide funding or granting credit in order to assess the stability and growth of the company. In the end, it makes it easy to calculate the return on investment.

Some of the stakeholders try to evaluate the solvency and liquidity of the company in order to test its capability for generating resources. The basic objective behind this step is to calculate the flow of money and assess performance.

An evaluation of the source and features related to financial business along with the performance takes place in the company. The major factor behind this step to evaluate the use of several resources in a particular company.

In the final stage, an opinion of the company is derived regarding the handling of business manner and conduct an evaluation of the management of the administration, for having a proper management of profitability, solvency and growth of the company (Akerlof, 1970, ...