Ratios to Learn Before Writing Financial Statement Analysis Assignment

If you are an accounting freak, you’d surely know how important ratios are to conduct a thorough analysis of financial statements of any business concern.

But if you are an amateur and pursuing your initial years of financial education, this article will serve as the most needed online financial statement analysis assignment help.

Let’s learn together!

1· Liquidity Ratios:

Probably the easiest ratios you will ever need to calculate. Liquidity ratio helps a company in understanding its everyday needs of cash and cash equivalents. It also tells if a company is able to cover all of its expenses or not. It is further divided into following parts:

1. Current Ratio: Current ratio is the ratio of a company’s current assets to its current liabilities. The larger the current ration, the better the financial standing of the company. 

2. Quick Ratio: Quick assets are the assets that can be converted in cash in a day or so. Like, cash, accounts receivables, marketable securities. Just like the current ratio, quick ratio is also the larger, the better.

2· Efficiency Ratios: 

These ratios help in understanding the strengths of the company in terms of its capital and other resources. These include:

1. Asset Turnover Ratio: This indicates how well a company is able to turn its assets into sales. Again, the larger, the better.

2. Debt to Equity Ratio: This ratio helps in differentiating between the capital contributed by creditors and investors to the company. The formula used to calculate this is total liabilities/total equity. The smaller the number, the better the ratio. Because this will mean that the company has acquired most of its funds from equity and preference shares. 2:1 is considered as the ideal debt to equity ratio.

3· Solvency Ratios:

This ratio tells how well a company is repaying its debt. These include:

1. Debt-to-Worth Ratio: This ratio tells how much capital is served by the creditors. This is calculated by using the formula Total Liabilities/ Total Worth.

2. Working Capital: This is not a ratio but is, of course, a very important figure for all the users of financial statements to understand. The formula to calculate working capital is Current Assets – Current Liabilities.

4· Profitability Ratio:

What are the users of financial statements most interested in? Profit, of course. So, this ratio is probably the one that a lot of people look up to. This include:

1. Return on Assets: This ratio helps in knowing how much profit that a company earns in a particular time period has come from the use of assets of that company. The formula used to calculate this is Net Income/ Average Net Assets. 

Average Net Assets = (Assets in the beginning of the year + Assets at the end of the year)/2

2. Profit Margin: Here comes the star of all ratios. This ratio is probably the most important ratio and is considered as a base whenever the company plans to conduct its financial planning for further years. It is calculated by using the formula Net Income/ Net Sales.

So, no matter if you are new to accounting just learnt the above-mentioned ratios, and you won’t face any troubles while writing your assignment.

Summary:

Accounting seems to be complicated for students. This article highlights all the important ratios that every student needs to learn before starting any assignment, including analysis of financial statements.

About the author:

John Noel is an academic writer at Instant Assignment Help. He has been working in the academic writing industry for the past 3 years. Apart from this he is helping students with their assignment writing task, he conducts motivational sessions for them.