Comparative Ratio

Comparative and Ratio Analysis

Greg Hunter, Byron Gardner, Pelesia Tillman, and Noelle Jackson

ACC/561

04/05/2014

Mrs. Tasha Thompson

Comparative and Ratio Analysis

When you talk about analysis, a company starts this by splitting ratios into sets, such as cost-effectiveness, liquidity, monetary weight, and asset revenue. The ratios examine diverse portions of the business centered on connected accounting facts. Information provided from each group includes the ability to meet short-term debt obligations, use of assets to generate profits, use of debt in the business, and profit earned from a single product or multiple product lines. Accountants naturally formulate the ratios as they are unbiased parties when conducting an analysis. After owners and executives take the data for comparative and review purposes, ratios are often more of an internal accounting tool for specific stakeholders. Consequently, the feedback can have a layout that best fits the prerequisites of proprietors, administrators, or managers (wiseGEEK: What Is Comparative Ratio Analysis?, 2014).

Financial Analysis vs. Ratio Analysis

Financial Analysis

Financial analysis is the process of evaluating a company’s finances, to determine if the corporation is stable, solvent, liquid, or profitable. The main focus of a financial analysis is to draw conclusions about corporation’s past performance to estimate its future. The two main conditions I will discuss referring to financial analysis will be solvency and liquidity. Solvency is a corporation’s ability to meet its long-term financial obligations. Liquidity is a corporation’s ability to pay short-term obligations; the term likewise compliments the capability to sell resources swiftly to increase monies. A solvent corporation usually owns more than it owes; in other words, it has a progressive net worth and controllable liability. A company with satisfactory liquidity has enough cash to maintain, but in the future may be headed toward a...