Ratio Analysis for business

Parminder Singh, Section (B),Roll No,MB-99
Sanjay Verma, Section (C), Roll No,MB-166
kamaljeet Togra, Section (A), Roll No,MB-40


INTRODUCTION TO RATIO ANALYSIS:
A general technique for analyzing a business's performance or its potential performance is known as Ratios Analysis. Ratio Analysis involves calculating ratios for a business or proposed business and comparing them to ratios of other businesses within the same industry.
Ratios involve dividing numbers from a business' Balance Sheet and Income Statement to create percentages and decimals. When existing businesses apply for a loan, for example, bankers will look at the company's ratios and compare them to ratios of other businesses within the same industry. This will determine how "stable" the company is compared to other businesses within the same industry. Moreover, ratio analysis will assist investors in determining three things about an existing business:
1. How the business is presently performing;
2. How the business has performed in the past;
3. How the business is performing relative to other businesses in the industry.
(Parminder Singh)


DISCUSSION:
When computing financial ratios and when doing other financial statement analysis always keep in mind that the financial statements reflect the accounting principles. This means assets are generally not reported at their current value. It is also likely that many brand names and unique product lines will not be included among the assets reported on the balance sheet, even though they may be the most valuable of all the items owned by a company.
These examples are signals that financial ratios and financial statement analysis have limitations. It is also important to realize that an impressive financial ratio in one industry might be viewed as less than impressive in a different industry.
Our explanation of financial ratios and financial statement analysis is organized as follows:
Balance Sheet
General discussion
Common-size balance sheet
Financial ratios based on the balance sheet
Income Statement
General discussion
Common-size income statement
Financial ratios based on the income statement
Statement of Cash Flows
The balance sheet reports a company's assets, liabilities, and stockholders' equity as of a specific date, such as December 31, 2010, September 28, 2010, etc.
The accountants' cost principle and the monetary unit assumption will limit the assets reported on the balance sheet. Assets will be reported
(1) only if they were acquired in a transaction, and
(2) generally at an amount that is not greater than the asset's cost at the time of the transaction.
(Sanjay Verma)


CONCLUSION:
There is a lot to be said for valuing a company, it is no easy task. I hope that we have helped shed some light on this topic, and that you will use this information to make educated investment decisions.
Let's recap what we've learned:

*Financial reports are published quarterly and annually.

*Ratios on their own don't really tell us a whole lot, but when we compare them against previous years numbers, other companies, industry averages, or the economy in general it can reveal a lot!

*Every ratio has it's variations, some people exclude things that others include. Use what you feel comfortable with, but be sure to have consistency when c comparing against other companies.
(Kamaljeet Togra)