Ratio Analysis - Coursework Example

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To start with, for a business to prove its performance and status and favorably it ought to conduct financial ratio or simply ratio analysis and establishment of relationship for various variables and assist in ascertaining the status of an enterprise via financial ratio…
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Ratio Analysis
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Download file to see previous pages Through the use of accounting analysis using ratios, financial analysts are able to assess and compare the present performance with the previous and even with other similar firms under the same industry. This is through either vertical or horizontal analysis. For instance, general through the above analysis, it is generally appearing that Apple and Inc is operating under favorable conditions compared to Hewlett-Packard.
For instance, there many stakeholders who have interest in knowing how the business is performing through analysis of the financial reports and statements (Stickney, 2007). Additionally, creditors, shareholders, staff, and the government among others are usually investigating the state of affairs of the company to assess the leverage, profitability, efficiency and the liquidity position of a corporation. Sometimes accounting ratios are used as a basis of controls by business entities. All the stakeholders in a company are given objectives and goals set which they are required to achieve and at the end of financial year, their performance is assessed to note any problem that might have occurred.
Firstly, the Liquidity ratios are used in measuring the capability of a business in meeting its short run maturity obligations and assess its credit position and the level it can use debt capital as a source of finance (Stickney, 2007). For instance, the current ratio determines the liquidity position of an enterprise. Furthermore, the company creditors need to know this to determine the credit worthiness of a firm. From our ratios, it is evident that Apple Inc. ltd is at a better liquidity position in comparison to Hewlett-Packard which has a lower ratio.
The lower ratio portrays that the company is at greater liquidity risk. Apple Inc. Ltd is, therefore, exposed to more cash position and it in a position of meeting its short-term obligation compared to Hewlett Packard.
Secondly, the gearing (leverage) ratio usually ...Download file to see next pagesRead More
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