What are some of the main reasons you may want to look at an actual ratio...

What are some of the main reasons you may want to look at an actual ratio to compare two companies, as opposed to just looking at straight numbers from both companies?

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Expert Solution

While comparing to the two companies we cannot rely only on the figure of financial statements, This is due to the possibility of the size of the both companies may not be the same. One company have larger sales but revenue is less and other have less sales but revenue is more than other company.

Ex. Company X have sales of $ 10 Million and Company Y have the Sales is 8 million but the net revenue of the Company X is 2 million and Company Y have the net income 3 Million.

So in the given case if we can see the turnover of Company X is greater than Company Y but Net revenue of Company Y is greater than Company X.

Due to this reason we need the ratio analysis of any company it will show the actual and correct picture of any company like Gross profit ratio, Net profit ratio, Current assets Ratio, Net worth ratio.

And this is happend due to difference in size of the companies, difference of sources of funds, difference cost of capital, Difference in operating expenses etc.

ekkarill92 answered 2 years ago

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