ACCOUNTING-Discuss how business owners and leaders can use financial statement ratios to make decisions?
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Discuss how business owners and leaders can use financial statement ratios to make decisions
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Answer:
^ 1. Ratios broadly fall in following categories: i. Profitability ratios ii. Operating ratios iii.Debt-equity ratios iv.Liquidity ratios. 2. They are like a barometers and show the health or otherwise of a company. 3. They help the management in the process of planning, direction, motivation and control. 4. If owners as well as top management find that the ratios show an unhealthy trend, they shall try to reverse the situation and put the company on sound footing. The working of the company will have to be improved through rationalisation and other methods. 5. The ratios will also help at the time of taking decision on expansion, diversification, takeover, mergers, etc. Before undertaking these projects, they have to ensure that the liquidity position of the company will not get strained. They have to ensure proper debt-equity ratio. ^
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