unit 2 d2

UNIT 9 D2

The importance of ratios in any business is vital because it gives the business a better understanding of the financial data. By using ratios we can compare data from the current year with the previous years, from this the business will identify if they are making more profit or a loss of if they just broke even.

Ratios are helpful for many reasons but the first reason is that they provide methods in order to compare other businesses financial stability. Businesses are judged on their performance on their size, market share or sales volume. From comparing two businesses financial stability from this data you only get a limited insight to the business because it is only limited data as there is much more to a businesses stability to numbers. 

They would think of recruiting staff when they know that their sales are high and the time to do the job isn’t enough. They run their business by according to situations if front of them and do not use ratios. Depending on how the assets are used profits can be affected, for example; if machinery equipments are only used for a few hours a day then it is not that much of a use to the business, then the outcome leads to less sales revenue and less profit for the business which could make the business into debt or make them in loss. Financial Ratio: This is also the working capital management ratio. This ratio evaluates the sufficiency of the working capital in the business and the useful use. There are funds that have working capital and fixed asset in the business. What the business has which is assessable to sell or that can be changed to money is a current asset, for example; debtor’s cash or stock. 

In my opinion, I believe that financial ratios are helpful in businesses to an extent.