Analyze the financial performance using Financial Ratios
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You have been given the financial statements and asked to analyze the financial performance of your division. Other managers have suggested you use financial ratios in your analysis. What are financial ratios? Which ratios might you use in your analysis? List them and explain what information they provide. How would you use them to make managerial decisions?
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Solution clearly explains how to analyze the financial performance of a division based on the financial statements provided using financial ratios. It also explains the important financial ratios that are generally used while taking Managerial Decisions.
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Financial Ratios:
In finance, a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an enterprise's financial statements.
There are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.
If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
A firm's performance can be evaluated using financial ratios. Referencing these ratios to those of other firms allows a comparison to be made.
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