Comparative and ratio analysis to measure profitability and liquidity

The reason why the father wished to close down the branch was that it appeared to be making a loss. However, it is quite the reverse; if the branch was closed then, the positive contribution from the branch would be lost and overall profits would fall.

Comparative and ratio analysis to measure profitability and liquidity

This analysis may be performed internally or externally. For example, internal analysis regarding liquidity ratios involves utilizing multiple accounting periods that are reported using the same accounting methods. Comparing previous time periods to current operations allows analysts to track changes in the business.

In general, a higher liquidity ratio indicates that a company is more liquid and has better coverage of outstanding debts. Alternatively, external analysis involves comparing the liquidity ratios of one company to another company or entire industry.

Liquidity ratio analysis may not be as effective when looking across industries, as various businesses require different financing structures. Liquidity ratio analysis is less effective for comparing businesses of different sizes in different geographical locations.

A company must have more total assets than total liabilities to be considered solvent and more current assets than current liabilities to be considered liquid.

Although solvency is not directly correlated to liquidity, liquidity ratios present a preliminary expectation regarding the solvency of a company. Examples of Liquidity Ratios The most basic liquidity ratio or metric is the calculation of working capital.

Working capital is the difference between current assets and current liabilities. If a business has a positive working capital, this indicates it has more current assets than current liabilities and in the event of an emergency, the business can pay all of its short-term debts.

A negative working capital indicates that a company is illiquid.

Comparative and ratio analysis to measure profitability and liquidity

The current ratio divides total current assets by total current liabilities. This ratio provides the most basic analysis regarding the coverage level of current debts by current assets.

The quick ratio expands on the current ratio by only including cash, marketable securities and accounts receivable in the numerator. The quick ratio reflects the potential difficulty in selling inventory or prepaid assets in the result of an emergency.Box and Cox () developed the transformation.

Estimation of any Box-Cox parameters is by maximum likelihood.

Ratio Analysis of Financial Statements (Formula, Types, Excel)

Box and Cox () offered an example in which the data had the form of survival times but the underlying biological structure was of hazard rates, and the transformation identified this. Speed read up to 10 years of entire 10K Annual Reports and Quarterly 10Q SEC filings for PRUDENTIAL FINANCIAL INC (PRU) using our online tools to quickly find topics, view inline highlights of positive and negative remarks by management or export to a PDF, Word or Excel file for offline viewing.

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Comparative and ratio analysis to measure profitability and liquidity

MODULE - 6A Analysis of Financial Statements Notes 1 Financial Statements Analysis - An Introduction ACCOUNTANCY You have already learnt about the preparation of financial statements i.e. Financial ratio analysis – relating line items from an organisation’s financial statements to assess the organisation’s financial status or performance at a point in time; or by indicating a trend over a time series; or by comparison with another similar organisation.

Perhaps the best way for small business owners to use financial ratios is to conduct a formal ratio analysis on a regular basis. The raw data used to compute the ratios should be recorded on a.

Accounting Terms and Definitions