Ratio Analysis

May 29th, 2015
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Ohio State University
Course: general
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Ratio Analysis is the process of determining and interpreting numerical relationship between the figures which are given in the financial statements. It is concerned with the calculation of relationships, which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise.

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Ratio AnalysisQuestion 1Ratio Analysis is the process of determining and interpreting numerical relationship between the figures which are given in the financial statements. It is concerned with the calculation of relationships, which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgments.Question 2 1. Profitability ratiosi) Return on capital employed (ROCE) - Return on capital employed (ROCE) is used as a measure of success of a business. It indicates the percentage of return on capital employed in the business and it can be used to show the overall profitability and efficiency of the business. It is the rate of return a business is making on the total capital employed in the business.ROCE = Net profit Capital employedii) Gross profit as a percentage of sales - The gross profit as a percentage of sales, tells us the profit a business makes on its cost of goods sold. It is one of several key measurements a company uses in evaluating its financial performance. It helps the company to see what percentage of its earning after costs (for products and/or services) is profit.Gross Profit Margin = Gross Profit * 100

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