1. Explain some benefits of financial ratios. 2. The summarized version of the Income Statement for...

1. Explain some benefits of financial ratios. 2. The summarized version of the Income Statement for the year ended 31 December 2012 and the Statement of Financial Position as at 31 December 2012 for Perniagaan Salamah Sdn Bhd are as follows:

Expert Solution

1. Financial ratios are used in order to determine how companies are performing in comparison with one another. By looking at the ratios an investor can come to know whether the company is operating efficiently and whether it is earning profits. The main benefits of financial ratios are as follows

It provide an equal basis of comparison. It is better to compare the financial ratios of two companies rather than examining the raw data.
It helps in setting certain benchmarks for the performance of different companies in the industry.
Help the entrepreneurs to make further plans for the better performance of the company.
Strengths and stability of the company can be assessed which is relevant for the investors in the stock market.
It also helps in identifying the weaknesses of the company and gives the opportunity for the entrepreneur to rectify the same.
It helps to assess how a particular company is performing over a period of time.

Rahul Sunny answered 2 years ago

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