Slide 7.1
Chapters 7 & 8
Analysing and Interpreting
Financial Statements
Lectures 9 and 10
Dr Ishani Chandrasekara
,Slide 7.2
LEARNING OUTCOMES
You should be able to:
Identify the major categories of ratios
that can be used for analysis purposes
Calculate key ratios for assessing the
financial performance and position of a
business and explain their significance
Discuss the use of ratios in helping to predict
financial failure
Discuss the limitations of ratios as a tool of
financial analysis
,Slide 7.3
Financial Ratios
• Financial Ratios are useful indicators of a firm’s
financial performance (health) and position.
– Example
– Useful to compare companies
– Useful to compare the performance of a company over time
– Useful for planned performance
• Without a detailed investigation financial ratios are
no use – they are just numbers.
• Financial Ratios help to highlight the financial
strengths and weakness of a business.
Ratios does not provide answers!
, Slide 7.4
Financial Ratios
• Financial Ratios can be expressed in various forms
• Percentage
• Proportion
• Days
• Depending on the needs of the user
• There are no generally accepted list nor standard
method of calculating financial ratios
• The most important thing to remember using
financial ratios is the consistency for comparison
purposes
Chapters 7 & 8
Analysing and Interpreting
Financial Statements
Lectures 9 and 10
Dr Ishani Chandrasekara
,Slide 7.2
LEARNING OUTCOMES
You should be able to:
Identify the major categories of ratios
that can be used for analysis purposes
Calculate key ratios for assessing the
financial performance and position of a
business and explain their significance
Discuss the use of ratios in helping to predict
financial failure
Discuss the limitations of ratios as a tool of
financial analysis
,Slide 7.3
Financial Ratios
• Financial Ratios are useful indicators of a firm’s
financial performance (health) and position.
– Example
– Useful to compare companies
– Useful to compare the performance of a company over time
– Useful for planned performance
• Without a detailed investigation financial ratios are
no use – they are just numbers.
• Financial Ratios help to highlight the financial
strengths and weakness of a business.
Ratios does not provide answers!
, Slide 7.4
Financial Ratios
• Financial Ratios can be expressed in various forms
• Percentage
• Proportion
• Days
• Depending on the needs of the user
• There are no generally accepted list nor standard
method of calculating financial ratios
• The most important thing to remember using
financial ratios is the consistency for comparison
purposes
