• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

There are many reasons why the use of ratio analysis will benefit Alpha Ltd

Extracts from this document...


Transfer-Encoding: chunked Ratio analysis is the 1) Single most important technique of financial analysis in which quantities are converted into ratios for meaningful comparisons, with past ratios and ratios of other firms in the same or different industries. Ratio analysis determines trends and exposes strengths or weaknesses of a firm. There are many reasons why the use of ratio analysis will benefit Alpha Ltd. Ratio analysis simplifies the financial statements and helps in comparing companies of different size with each other. In addition, ratio analysis helps in trend analysis which involves comparing a single company over a period. And lastly, it can highlights important information in simple form quickly; Alpha Ltd can explore their business performance by just looking at few numbers instead of reading the whole financial statements. ...read more.


Lastly, Shareholders will use the business ratio to make sure they are gaining the right dividends and if they are not, they may request a fairer share. Furthermore, there are external stakeholders. 3) External stakeholders are people outside a particular company who is affected by its success or failure, these include creditors, the government and competitors. Creditors will be interested in Alpha Ltd ratio analysis because they will use the ratios to see how much the business are earning and will know if they will be able to pay the bills. Moreover, the government will be interested because they will look at the ratios to set the corporation tax which depends on profits. ...read more.


This would be good for Alpha Ltd because it?s a quick and easy measure of their ability to turn resources into revenue. 4) Furthermore, profitability ratio asses the amount of gross or net profit made by the business in relation to the business?s turnover or the assets or capital available; this will be good for Alpha to use to see how much money they are making, and can easily see if there are any concerns (not making enough money). 4) In addition, gearing examines the relationship between internal sources and external sources of finance. It is therefore concerned with long-term financial position of the company. 4) Lastly, shareholder ratio measures the returns received by the owners of the company allowing comparison with alternative investments. For obvious reasons they are also called investment ratio. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. SWOT Analysis for Coca Cola

    The market is expected to rise to 38.6 billion by 2010. Coca-Cola could then influence it strong place in the bottled water section and take advantage of the massively growing demand for flavoured water all over the world. * The growing Spanish population in the US As a result of

  2. Sources Of Finance

    several liability this means as will as the partners equally having to pay the overdraft back they will also have to pay the other individuals money to the bank if the have a dispute and one of them moves away and stops paying the debit.

  1. A2 Business CourseWork

    This is helpful to staff to allow them to be confident in their new jobs. It will also help them build relationships with other colleagues and managers. Tesco set a target of 10% of staff being trained. Because it is the first year they do not have a current performance

  2. Sainsbury's Ratio Analysis

    * It helps investors to check that their investment is doing well and providing a fair return on their money. * Suppliers, if they are owed money by the business then they will want to know If they are likely to get their money back.

  1. Financial Ratio Analysis.

    Other strengths are as follows: * It summarises relationships and results relevant to an organisation's performance. * It allows year-to-year performance comparison. * It allows performance comparisons of organisations in the same industry. * It allows trends to emerge and hence predictions to be made.

  2. Accounting Ratios. By using ratios Hills System ltd can monitor their businesss performance. ...

    rent for use of a building and money owed to suppliers for material .These liabilities can be classed as either current liabilities or long-term liabilities. Hill Systems ltd, Balance sheet ? 2007 2008 � 000's � 000's Fixed assets Land and premises 1105 1336 Fixtures and fittings 115 258 Motor

  1. Break even analysis

    However, as the scale of the business grows (e.g. output, number people employed, number and complexity of transactions) then more resources are required.


    When the ratio is higher it is better for the company to pay of its short term liabilities. A ratio under 1 indicates that the business may struggle to pay off their short term liabilities. Calculation: This ratio signifies a figure of 4.52:1 which infers SIGNature will be able to afford their short term liabilities.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work