There are many special measurements that may be developed from financial
statements and supplementary financial data. Such measurements may be divided
into:
- Those that
analyze balance sheet position, and
- Those that
analyze
operating results.
Some of these measurements have special significance to
particular groups, while others may be of general interest to all groups.
Creditors, for example, are concerned with the ability of a company to pay its
current obligations and seek information about the relationship of current
assets to current liabilities. Shareholders are concerned with dividends and
seek information relating the earnings per share that will form the basis for
dividend declarations. Management is concerned with the liquidity of stock of
goods and seek information relating to the number of times stock have turned
over during the period. All parties are vitally interested in the profitability
of operations and wish to be informed about the relationship of earnings to both
creditors and shareholders.
A number of measurements developed from financial statements will be
explained effectively through using accounting ratios. It is fact that ratio
analysis is one of the tools of the financial analysis. It is used to diagnose
the financial health of an enterprise.
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