Reflection on the financial ratios and constraints Project

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Reflectionon the financial ratios and constraints Project

Reflectionon the financial ratios and constraints Project

Ibelieve that any successful business man or woman will want toevaluate his or her company performance as constantly as possible.This is an important activity that helps small business firms to ableto compare their current figures with the historical figures or withfigures from competitors as well as across business that aresuccessful in other industries. This helps a company to be able toclosely examine its effectiveness as compared to other businesses.Financial ratios are thus an important tool for business as well asprospective investors use in getting accurate financial positions ofcompanies. This study has made me realize that financial informationgoes beyond the use of financial items such as company assets, salesor profits. Financial ratios help companies as well as prospectiveinvestors to get more detailed information regarding companies asthey are able to read between the lines of the company’s financialstatements. In this regard, any financial figures that seem to beinconsequentially accessible are comprehended.

Thestudy about this project has made me learn how businesses simplifyoverload of massive financial statements or data. For example, theuse of ratios that are well tested and proven to be effective,simplifies the process of financial evaluation. Investors are able toquickly get certain figures that are important for comparativeanalysis and this eases the process of decisions making. In addition,the ratios provide one with accurate information that demonstratesthe financial position of any business firm, thus one is able to makeinformed decisions. This allays all the probabilities of incurringhuge losses as a result of bad or misinformed financial information,which may be as a result of bad investment options.

Moreover,I have learnt that small and growing business firms use financialinformation as critical tools of evaluating, identifying andquantifying the company’s strengths or weaknesses. Thus, thefinancial ratios are an important source of information on decisionmaking processes in the management levels. In case a companyidentifies or suspects any weaknesses from the financial informationavailable, they are able to act decisively and appropriately. Inother words, the financial ratios are critical tools in the processesof risk management. Firms are able to learn the financial positionsof their companies. Consequently, companies are able to understandthe available risks with undertaking certain projects and thenevaluate the viability of management decisions available.

Inthe project, I explored the core aim of any business firm or investoris to make profit at the end of an investment. Thus, ratios assignificant profit tools in the processes of financial analysisassist in the processes of implementation. The main aim here, is toimprove profitability, the financial structure, liquidity, leverage,interest coverage or reordering. In this regard, it is important forone to recognize that financial ratios are used as predictive toolsbut with accurate information. Financial ratios are critical tools ofevaluation that may be used by any business firm to respond toproblems in the company. In addition, they offer an effective andreliable tool of analysis for investors in learning the financialpositions of any business firm of interest.

Studyingfor this project enabled me to understand that most companies usefinancial process of analysis when comparing the financial figures,usually over long period of time. The main aim of this strategy is tocheck the existing trend in the company which may be bad or good. Inaddition, this method of evaluation is important for comparativeanalysis in regards to other businesses in the same sector or acrossindustries. Therefore, companies are able to make adjustments thatare responsive to the information given from this analysis.