Financial ratios

Introduction Every organisation aims to maintain its market dominant position as well as to maximise its profitability through a series of activities, so as to remain competitive within framework of the market mechanism and to advance functions. It is necessary for managers to be familiar with the overall performance of the enterprise, in an effort to develop an effective strategic plan for companies' prosperity and progress. Thus it is essential to identify the capabilities of …

…earlier ratios can only be meaningful measurement of a company's performance if there are compared to other ratios. However , problems with the comparison of two companies ratios can also occur due to the differences such as financial year and financial policies. 'Ratio help to highlight the financial strengths and weaknesses of a business, but they cannot, by themselves explain why certain strengths and weaknesses exist, or why certain changes have occurred'. (Atrill and McLaney, 2004, p179)