Anonymous
Anonymous asked in Business & FinanceInvesting · 1 decade ago

Accounting Question- Analysing Ratio's....PLEASE HELP ME. THANKS!?

When analysing financial ratios should i first explain what the ratios are

(this is for a formal business report assignment)

Can i for example, say something like.....

"The return on total assets is an attempt to measure the rate of return earned by management through operating activities. The ratio is useful in measuring management’s efficiency in using the firm’s assets to produce operating profits. During 20X6 River Ltd, through its operating activities, produced 17.04 cents in profit for every dollar invested in resources, compared with 17.10 cents for Lake Ltd. The industry average is 17.00 cents for every dollar invested. This suggests that both companies are within industry standards, which reflects reasonable performance by both companies."

Update:

Should i explain what the ratio means first? Or just go straight to writing about what the ratios tells me for the business's

2 Answers

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  • 1 decade ago
    Favorite Answer

    Generally it will depend on who your audience is in a formal business report. When writing to senior executives or analysts (or if your report should be geared to them), or basically anyone with moderate business acumen, it would be unnecessary to explain what the ratios were since it is common knowledge what return on assets are. In business reports, succinct is key because people don't want to read things they already know. In our consulting project this year, we did hours upon hours of research, but we weren't to include all data and explanations of how we carried out or research or data analysis within the report. Instead, we only included recommendations as well as some explanation (in exhibits) of how we arrived at our conclusions when it was not obvious. I guess the bottom line is, in formal business reports, you don't need to spell out definitions - it's up to the reader to know what that is. You can slip in a definition by explaining why you're using the ratio (and is also less obviously a blatant definition in the report)

    Totally different story on a school assignment however, so it definitely depends on WHO you're writing this report to. Even in school reports, though, emphasis should be on the implications. I might sum it up to say:

    "To analyze the efficiency with which management utilized the assets of the firm, the return on assets (ROA) ratio for 20X6 River Ltd. was benchmarked to the industry and to specific competitors. Given the industry average of 17% and competitor Lake Ltd. value of 17.1%, 20X6 River Ltd's ROA of 17.04% roughly matched industry standards. Consequently, both companies performed reasonably during the period, with Lake Ltd. having the slight edge."

  • haag
    Lv 4
    4 years ago

    The form of workers is was sure your salary cost that's a element of your working cost. i'm undecided approximately your ratio. that's the call that i detect puzzling.. according to hazard you will desire to show interior the question what you attempt to learn.

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