Financial Analysis for Managers

This presentation provides an overview of financial analysis for managers. It explains the importance of financial analysis in decision making and covers topics such as ratio analysis, profitability ratios, liquidity ratios, efficiency ratios, solvency ratios, and trend analysis.

Accounts for
managers

Introduction
 The financial analysis is very important method.
 The financial analysis is helpful to render relevant information to
entity’s stakeholders in taking good decision.
 The administration of company is accountable for making decisions
as well as plans in future.
 In this report, financial analysis of Globe International Limited is
made by trend analysis along with ratio analysis..

Ratio analysis
 The ratio analysis is a comparison of line item in entity’s financial
statements.
 The significance and aim of the ratio analysis is to assess financial
performance of company in relation to the risk, profitability,
efficiency as well as Solvency.
 The ratio analysis is very helpful for comparing the trends of 2 or
more corporations over the time.

Profitability Ratios
 The profitability examines the earning ability or ability to get positive
net income for the provided level of investment. When the
corporation is not beneficial, then the corporation finally becomes
insolvent.
 The profitability ratio examines the company’s net income to get the
data related to sales made by the corporation.
 The gross margin represents sales revenue that entity maintains after
occurring direct cost related to producing services along with goods it
sells

Liquidity Ratio
 The liquidity ratios is helpful in assessing the capability of entity for
using the current resources to meet the short-term requirements.
 For assessing the liquidity position of the organisation, the ratios such
as current ratio and equity ratio can be useful.
 The current ratio and equity ratio can be helpful to have knowledge of
capability of entity to render current liabilities over the current assets.

 The equity ratio is a financial ratio that state the relative amount of
equity used to finance company’s assets.
 The equity ratio excludes the debt financing utilised by the
organisation to raise the funds.
 The ideal debt to equity ratio is approximately 1 to 1.5. Though, the
ideal debt to equity ratio would differ depending on industry for the
reason that certain industries utilise the additional debt financing in
comparison of others.

Efficiency Ratio
 The efficiency ratios may be helpful to evaluate because these ratio
assesses the capability of the company to utilise the assets as well as
resources. The efficiency ratios cover the credit period along with
inventory turnover ratio.
 The inventory turnover ratio is a ratio for defining how many times
corporation has sold inventories in the provided time.
 Furthermore, the credit period is the numbers of the day that the
customers are allowed for waiting before paying invoices.

Solvency ratio
 The solvency assesses the capability for making the principle
payment as well as interest amount upon long-term debts as well as
the similar commitment as they become due. While the entity may
not create the payment of principle as well as interest amount timely,
then it becomes insolvent.
 This ratio assesses long term debt-financing amount as a part of total
capital structure.
 Moreover, the interest time means the metric utilised for assessing
entity’s capability to evaluate the debt obligation.

Trend Analysis
 The trend analysis is a widespread approach to collect data as well as
attempt to spot the patterns. In certain areas, the expression "trend
analysis" has more formally described meaning.
 The trend analysis is so important to consider the past information in
the great context of condition for underlying entity to have
knowledge if there are components that may affect the stock’s value
notwithstanding of general market condition or past performance.

Conclusion
 As per the above analysis, this is clear that the financial analyses is
very important method for assessing the financial position of an
entity effectively.
 In calculation, it can say that there are mixed outcomes. This is
essential to assess the quality of company’s financial statements.