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I have identified different types of ratios using financial information from the company named First communication plc. I have identified how these ratios help the user to understand the financial position and performance of the business.

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Introduction Ratios are useful because they briefly summarise the result of detailed and complex calculation. Ratios evaluate financial condition and performance of a business concern. However ratio simply means a comparison of one figure to other relevant figure. Ratios is used by internal stake holder such as managers, where they assess performance of individual branches, they monitor year to year performance, analyse relationships between revenues and expenses and so on. It is also, used by employees whereby they use it to negotiate wages and conditions, assess security of firm and therefore own a job etc. It is also, used by external stakeholders such as customers and creditors. Creditors assess security of the firm and decide on credit terms offered Liquidity ratios Liquidity ratios provides information about the company's short term financial circumstances, this states the extent to which a firm is able to pay off its debt therefore, it will measure whether the business has enough money to pay its bills. ...read more.


As you can see that the ratio is improving as it is higher, this means that the business deals in fast consumer goods Average Settlement period for debtors = Trade debtors x 365 Credit sales 2008 2009 260.5 X 365 = 75 days 11.9 x 365 = 3 days 1265.4 1391 In this one they have in 2008 they have 72 more days of average settlement period of debtors than 2009 Investor ratios These usually used by investors to assess the performance of the business as an investment. This will show how much the returns was in assets, capital and equity Dividends yield = dividends per share x 100 market value per share 2008 2009 0.075 X 100 = 1.9% 164.62 X 100 = 3.5% 4 668.2 The dividends yield in 2008 was 1.9% and in 2009 was 3.5%. Therefore, this is better than putting in the bank. ...read more.


and in 2009 is 4.2, therefore the company has improved because; if it was higher percentage then higher the business risk and ultimately the more money that is paid out in interest on long term debt. Interest cover ratio = profit before interest and taxation interest payable 2008 2009 494.5 = 20.6% 314.4 = 50.7% 24.0 6.2 As you can see here in 2008 was 20.6% and 2009 is 50.7%. According to this calculation we can see that in 2009 has higher percentage, having a higher percentage means that the business has the ability to meet its interest obligations from profits. If the ratio was lower that would mean that the business is in danger of not being able to meet its interest obligation Conclusion I have identified different types of ratios using financial information from the company named First communication plc. I have identified how these ratios help the user to understand the financial position and performance of the business. ?? ?? ?? ?? Abubakar Habib P6/M3 ...read more.

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There are some good points in this essay but too many errors in facts and calculations. Without the balance sheet and profit and loss statement it is hard to see what figures should be used but there is no consistent use of the figures e.g. share capital could be 4614 or 461.4. Are these thousands, millions or just pounds?

Marked by teacher David Salter 07/02/2012

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