Introduction to The Accounting Ratios

Показать описание

INTRODUCTION TO THE ACCOUNTING RATIOS
The accounting ratios play an important role that they can fulfil the needs of the users of the financial statements, whereby these statements can be easily interpreted and be of beneficial use.
Accounting ratios are used to analyse or compare financial data, and this will allow the person to gain an insight into how a business is performing from one period to another or how a business is performing against another business. Ratios can help people across business world answer many questions that they may have, such as, Why is one business more or less profitable than another business? Does the business have good controls of its expenses? What type of returns can I earn as a shareholder, if I invest in this business? Does the business have the ability to pay its debts when they are due? Or how well does the business manage the assets it has? Ratio analysis can help in answering and solving all these questions. There are normally four main stages with the ratio analysis. Firstly you collect the financial data from the financial statements. Then you calculate the ratios and once these have been calculated you then interpret and analyse the outcomes from the ratios. And finally take some action based on the analysis to improve or solve the situation for future periods. The accounting ratios use the financial information mostly from the income statement and balance sheet. From the income statement, common information used will be the revenue, cost and profit figures. And from the balance sheet, the typical information used will be the current assets and liabilities figures including inventory, debtors and creditors. Following on, the accounting ratios can be categorised into three main groups and they are profitability, liquidity and efficiency. Profitability ratios look at the profits and returns of the business. This is normally shown as a percentage of the revenue of the business. Liquidity ratios focus on the businesses ability to pay back the debts it has. And the efficiency ratios look at the timescale of when the business receives payments from its customers and when it pays its suppliers. And also how quickly does it take to turnover its inventory within the business. There are some groups who maybe interested with each of these ratio groups. For the profitability ratios, users such as shareholders, the government, competitors and employees maybe interested in how profitable the business is. The shareholders, lenders and suppliers will be interested in the liquidity ratios to see if the business has the financial capability to pay its debts and loans. And lastly for the efficiency ratios the shareholders, lenders and competitors may be of interest in terms of how efficient the business is within all areas of the business.

This video will help you with questions such as introduction to the accounting ratios, what are the key accounting ratios, what are the types of accounting ratios, what are the main types of accounting ratios, how do you study accounting ratios, introduction to the accounting ratios examples, accounting ratios example, accounting ratios formulas, uses of accounting ratios, the users of accounting ratios, limitations of accounting ratios.

MUSIC CREDIT
@benfrydrums

DISCLAIMER
Our content is to be used as an EDUCATIONAL TOOL that aims to provide a foundation for individuals to learn financial accounting, management accounting and bookkeeping topics as practiced in the United Kingdom. As a result, not all complexities are shown or provided. Examples may include but are not limited to; differences between financial reporting, accounting standards or tax treatments. We are NOT ENGAGED in the providing of accounting, bookkeeping, financial, investment, tax, or other professional services. You should consult with a qualified or professional such as an accountant, business advisor, investment specialist, lawyer, solicitor, etc., with regards to specific facts and situations.

#accountingratio #accountingratios #theaccountingratios