In , Hanuman Singh, a portfolio investor, was looking for investment opportunities in India. Singh's normal practice was to look at the company balance sheets, understand the company's strategy, and then decide whether to invest. But he recently had a bitter investing experience when the company he invested in went bankrupt. Singh now understood that a deeper analysis was required before investing.
Financial Ratio Analysis Case Study Example | Topics and Well Written Essays - words
In conjunction with the correctly applied underlying business data ratios allow better comparability and understandability and furnish more rapid evaluation, better perspective of overall business condition, past, present and possible future performance as well as comparison to industry benchmarks and other businesses in the same industry. Further adaptation and introduction of fair value based accounting principles on international scale will lead to improved and more relevant market based recognition of assets and liabilities as well as increased transparency. The application of ratio analysis may lead to erroneous conclusions especially if trends or comparisons are developed from financial statements based on the two different accounting principles or if mixed attributes are utilized in statements. As a general rule the user has to be aware that a ratio provided can at best only be as useful and reliable as the underlying data and should only be used for decision making in conjunction with actual statements including relevant disclosure, and good judgment.
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As part of the system of financial control in an organisation, it will be necessary to have ways of measuring the progress of the enterprise, so that managers know how well the company concerned is doing. The financial situation of a company will obviously affect its share price. The answer to some of the following questions can be obtained from accounting reports produced by the company:i. Is the company profitable? Is the company growing?