Ratio Analysis

RatioAnalysis

Financialratios are very important in comparing financial statements of acompany in a given period of time. Griffins Company is of noexception if the management has to sustain its existence. Severalratios for the company have been calculated for the period ended 31stDecember 2012 but of major interest in this case are the profitmargin ratio and the current ratio. Any company in business willfirst be gauged by its profitability and the profit margin ratio is aprofitability index. Griffin Company has a profit margin ratio of17.7% for that period. This implies that it made profit frominventory sales and has money to meet operating expenses. Thereforethe company can sustain it operations and the management should lookfor more ways of making more profit on sales. The company also hassome money that can be used to improve and fund other categories ofits operations and hence it is a company that is making profit. Thisis important for management, other stakeholders and investors.

Currentratio is a liquidity ratio that measures the company’s ability topay off its current liabilities by turning the current assets intocash. Griffin has a current ratio of 3.00 implying that the assetscan offset up to three times the value of short term liabilities. The company can easily offset its debt burden without disposing offixed assets and therefore it is making profit from its operations [ CITATION MyA14 l 1033 ].

Themanagement can therefore make adjustments that will improveprofitability and liquidity in the next financial year. Otherfinancial ratios calculated help in strengthening the decisions themanagement makes in all categories. Therefore, ratio analysis is atool that cannot be overlooked in financial standings of any businessentity.

References

MyAccountingCourse. (2014). Financial Ratio analysis. Retrieved December 13, 2014, from My accounting Course Website: http://www.myaccountingcourse.com/financial-ratios/