Purchase Solution

Importance of Ration Analysis in Assessing Firm Performance

Not what you're looking for?

Ask Custom Question

Ratio analysis are very important to analyse the performance of this. This response critically analyse how ratio analysis helps in evaluating firm performance.

Purchase this Solution
Solution Summary

Ratio analysis is important for evaluating the financial and operation performance of the firm. However, this method also has its limitations.

Solution Preview

Ratio analysis is an important aspect in the context of the evaluation of firm's financial and operational performance as it enables to determine the efficiency, profitability, liquidity, and solvency position of the firm, which are the major indicators of firm performance (Heintz and Parry, 2013). Ratio analysis predominantly involves the financial factor in the performance measurement, but it does not evaluate non-financial factors of a firm. Due to this, it is difficult to clearly assess the performance of the firm from this tool (Porter and Norton, 2016).

But at the same time, ratio analysis is a productive and efficient way of performance measurement, which aims to understand the relationship between the different variables of the firm ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • Financial Statement Analysis

    All firm of comparable market value 3. The fictional Molitor Company currently has a current ration of 1.1. The company decides to borrow $1,000, 000 from the fictional City National Bank for a period six months.

  • Audit Questions: Ethical performance

    (Pandey, 2007) This question is important in assessing the ethical performance of the firm because by maintaining transparency in its operations, the probability that the firm cheats or involves in any kind of material misstatements or creative accounting

  • Importance of Comparing Financial Ratios

    Please view the attachment file to see the chart. 2 Importance of comparison of ratios with industry averages. In assessing financial performance investors and creditors are interested in making comparisons from period to period.

  • financial measures as opposed to nonfinancial measures

    In the course of their evaluation, they will be assessing the firm's operating performance, benchmarking their competitors, and looking at the industry using financial ratios as their source of measurement.

  • Assessing Accounting Reports

    prepared - An analysis of the performance of the firm based on the analysis tools used - A summary of the company's financial performance and assessment of whether it has improved or declined year-over-year in terms of profitability, asset utilization

  • Discussing EVA for an Entity using Tangible/Intangible Resources

    Assessing the relationship between firm resources and product innovation performance; A resource-based view. Business Process Management Journal, 16 (3), 420.

  • Global Finance - hedged and mitigated explained

    Another reason for hedging the exposure of the firm to its financial price risk is to improve or maintain the competitiveness of the firm. Companies do not exist in isolation.

  • Credit to Corporate Customers

    Since the financial statements of publicly traded firm are easily available, ration analysis can be a relatively quicker and easier method to measure the credit risk of the firm.

  • Importance of Liquidity Ratios

    The importance and how to use them in personal investment decisions is given.

View More Related Solutions