Thesis: Introduction to Financial Ratio Analysis

Sample Thesis Paper

The use of financial ratios has been significant amongst users of financial information as described by Pink et al (2005)

‘Financial statement analysis is important to boards, managers, payers, lenders, and others who make judgments about the financial health of organizations. One widely accepted method of assessing financial statements is ratio analysis, which uses data from the balance sheet and income statement to produce values that have easily interpreted financial meaning’. (p. 229-236)

Financial ratios have been a part of the management toolkit for more than a century (Meikle 1993, p .55-58). The role of financial ratios is to calculate the relationship that exists among two variables such as debt and equity and interpret that relationship in a way that benefits financial decisions (Helmkamp 1987).  Financial Ratios are an extremely significant asset for managers and investors to have. They aid in comparison of data and relationships for different years for the same company and also for a comparison across different departments and businesses. They help in analyzing the overall financial position of a firm. They have conventionally been used as indicators for the past performance of a firm. However, they can also be used as a forecasting tool, which means that the future performance of a firm can be analyzed by looking at certain financial ratios (Atrill and McLaney 1997).

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