Analyzing the Financial Performance of a Division
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Details: You have been given the financial statements and asked to analyze the financial performance of your division. Other managers have suggested you use financial ratios in your analysis. What are financial ratios? Which ratios might you use in your analysis? List them and explain what information they provide. How would you use them to make managerial decisions?
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This solution helps analyze the financial performance of a division.
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Financial ratios are the ratios that describe the relationship between two or more figures. The purpose of the financial analysis is to provide relevant information to all the stakeholders of the organization that will help in their decision-making. This also helps in comparing the performance of the organization and used in the control of the organization. Different users of financial ratios may (bankers, investors, the company) interpret financial ratios in different manner. Bankers are interested in knowing about the solvency of the organization. They will be interested in solvency rations such as debt ratio, debt equity ratio and interest coverage ratio. Investors will be interested in knowing the returns that they can earn on their investments. They will be interested in return on equity, dividend yield, price to earning ratio and in profit margins.
Managers will be interested in knowing the efficiency of the organization. They will be ...
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