1.0 Background of the problem statement
1.1 Brief Description – The topic will deal with the importance of Ratio analysis in an organization. Ratio analysis is a viable tool that helps in determining the basis of the financial management techniques to be used in the organization. The importance of ratio analysis is that it highlights the major reason for profitability and also increases the science of the company which in return helps in the determination of the net financial resources that need to be allocated to the firm efficiency to avoid all the unnecessary expenses.
1.2 Background – The historical background says that ratio analysis came into existence years ago when there was a need for the analysis of standard financial statement derogation. The power of the financial institutions and the shifting of the managers to the professional managers helped in developing an all-over approach to profitability that would be the main focus in improving the profitability of the business (Michaelson et al. 2016). Late back in the nineteenth century, the study ensured in the rapid extensions that were considered to be the first catalyst in the development of the normal comparison which was to be done between the current assets and the current liabilities in relation to the diversified application of the ratio analysis. As the theory goes, the current ratio is considered to be the most important and significant ratio as compared to the other available ratios. The deployment in the relationship with the other entities also depends on the ratio analysis that serves as the main strategy in the complete model-based function which can also analyze the working of the company which also determines the financial growth that is determined (Mammadova and Jabrayilova, 2018). There are different critics who say that the interpretations depend on the working and the performance management of the company that also is the major source of manipulation of information.
1.3 Problem Statement
● Rationale for Relevance
Ratios are essential to profit tools that are used in financial analysis that help the analysis to implement certain plans that can improve the profitability and the liquidity of the financial statements (Han et al. 2020). Ratios also help in the determination of certain predictions that can also be used to compare the financial figures of the company and thus it can also help in adjusting the business accordingly that can bring an all-over change in the determination of all the non-recurring expenses.
• Interest Uniqueness
The uniqueness of ratio analysis is that it helps in determining the payment period that is available for the net debt payments to the creditors.
Ratio Analysis is an important management tool that will improve the understanding of the financial results and trends over time. It would also be the key indicator in organizational performance (Klaic, 2017,). The entire ratio analysis will be used by the firm to make the strength and the weakness strategies which can be applied in the daily performance.
2.0 Aims and Objectives of this Research
The aim of this research is to understand the importance of Ratio Analysis in an organization and at the same time also to provide a critical understanding of the implications of Ratio Analysis in organizations.
● Simplified Accounting Information
● Determines the liquidity and profitability aspects
● Analyzing the operating efficiency of the business
● Analyze the profitability
● To also help in providing a comparative analysis
2.3 Research Questions
A survey was done on which the following responses were added. They are available in the form of a questionnaire, as mentioned below:
Q1: What is the method of accounting that is followed by the company?
● “Historical Cost Accounting”
Q2: What is the year of acquisition of the assets each year?
● 12.5 billion (2017)
Q3: Adjusting of the balances and the concept of inflation go hand in hand. Is it true or false?
Q4: Inflation accounting will remove all the possible downfalls form accounting procedure. Agree or Disagree?
Q5: There is no awareness of this problem. Is it agreed or not agreed?
Table 1: The Research Questions (Source: Self-Created)
3.0 Literature Review
According to Carreras and Coenders, 2019, the importance of ratio analysis is to develop a certain understanding related to the management performance assessment and the strategic evaluation of measures. Thus the financial ratio analysis has been the main advantages in the process of evaluation in the determination of the strategic scenarios. A financial ratio is the constitution of the magnitude of the accounts that are included in the financial statements. The compositional data analysis helps in the analysis of certain features that help in reducing the redundancy of the analysis that requires more variables in the account magnitude comparison. In this, the author has mentioned about the compositional data analysis that uses a standard data over the different methods of the compositional analysis which is conducted to improve the importance of the most important agents in financial ratio analysis.
The data analysis and the visualization tool helps in supporting the strategic management decisions, and the approaches used in the determination of the same type of the financial statements are based over certain information over the arbitrary decision making that also depends on the analysis of the respect of the ratios with two different magnitudes. The financial information is used in the development of the proposed methodological approach that is also for too for many variables, and thus the analysis of the large distribution chains also depend on the methodological analysis that helps in the determination of a number of variables that can also result in the standard choice which tells about the imputation of the values in the financial statements. Further, it is considered as the major conceptual paradigms that are dependent on the adequate metric of the strategic groups and the multiple dimensions used in the determination of the financial statement analysis.
The strategic analysis tool is used in the determination of the possible financial analysis that can also prove to be a major advantage on the determination of the symmetrical source of information and the standard rate that is provided in deterring the different panel information that can also provide the extension to the existing financial data and the executions that can be informed in a professional way. Ratio analysis also helps in determining the major reasons for analyzing the main productivity of the profitable criteria that also helps in determining the financial trends over the period of time. The debt to capitalization ratio is the ratio that indicates the importance of the total amount of the capital that is present in the form of the capital expansions that would also create opportunities and would let the company expand in the determination of the long-term debt holding capacity and thus it can also turn out to be a risky business that can also help in the valuation of the assets in the liabilities that which can create substantiate pressure over the existing level of capital and the determination of the new exposures in business.
4.1 Conceptual Framework
The conceptual framework of this research is to develop the research strategy method that is the major decision-maker about the performance of a firm depending upon the different planning and analysis over the initiation of the amount of liquidity that helps to understand the net worth of the company (Karabašević and Maksimović, 2018). Thus it also helps in segregating between the liabilities and the assets. The conceptual framework from the quantitative analysis of ratio helps in predicting the pattern that can also be the major aspect of provincial stimulations that can also help in determining the major aspect of the ratio methods. The ratio analysis methods help in determining the conceptual framework analysis that helps in the interpretation of the information over the different aspects of the financial statements (Bertran, 2016). The ratio analysis helps in indicating better communication and better ways that help in the importation and the understanding of information which determine the different liquidating analysis and the other financial sources of information effectively.
4.2 Scope of the Research
The scope of the study is to analyze the information by collecting the financial information over the annual reports that will be dependent on the possible situations that will be detected (Radnović et al. 2019). Thus it also helps in collecting the relevant information over the case studies that highlight the liquidity and the solvency possibilities.
4.3 Choice of the research strategy
● The need for the study
The study will have a great significance over the benefits and the parties which will be linked directly and indirectly with the company (Grigorescu and Chiper, 2016). Thus the relationship will be determined on the basis of the different financial aspects and the allowances of the strength and weakness that would also help in determining various relationships of the various ratio analyses.
● Research Methodology
The research methodology is determined according to the financial credit worthiness of the company.
The cross-sectional analysis is dependent on the different strategies that are developed according to the determination of the data according to the general standards (link.springer.com, 2018).
4.4 Methods of collection of primary data
Data Information is collected on the basis of the internal guide and reference from the finance manager.
Secondary Data analysis will be dependent on the different company data and analysis that will also be dependent on the financial statement information which will be derived (Han e al. 2019).
The other sources of information will also be dependent on the different methods of questionnaire and the sample surveys that will be used in the determination of the financial statements.
4.5 Tools and Technique to analyze the data
The tools and techniques of financial statement analysis are:
● Statement of Cash Flows
● Balance Sheet
● Vertical Analysis
● Horizontal Analysis
● Statement of changes in stockholders’ equity
● Horizontal Analysis
● Profit and Loss Analysis
The company and the revenues are attached with the international accounting standards board that is required to record the different velocity of the financial statements and the nature of the transactions in the collection of the necessary amount of the credit and the cash payments. Thus it’s important in determining the method of recognition that initiates the company assets and the liabilities over the listing of different procedures in the statements (jamanetwork.com, 2017).
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Appendix 1: The Ethics Form