The financial statement makes it possible to calculate a lot financial ratios, so that they are appropriate to organize or unite into certain groups. Combining the indicators into homogeneous groups facilitates the work of analysts and auditors. The information becomes easier to select for consumers. It becomes easier to understand who financial ratios are more appropriate for wider operational decisions and which – for management decisions. Different financial ratios classifications can be found in various sources.
The conclusions of financial ratios clustering analysis are the following:
1. The Financial ratios can be classified into differently titled groups. Most common groups are the indicators of liquidity and profitability. Some groups are identified in different ways, although it is likely that they deal with the same things, for example, market value and market evaluation, investment and return of investment and investment management, solvency, long-term debt and long-term solvency, and so on.
2. The classification of financial ratios’ groups can have different sequences. Somewhere the financial ratios are considered to begin with liquidity or profitability, other classifications start with the risks and so on. Inconsistent layout of the financial ratios analysis prevents the development of their inter-relationships and dependencies, to clarify their determinants.
3. There are different numbers of groups in the classification of financial ratios. Somewhere distinguishes only two groups, others go with five or six. It is clear that all financial ratios, which would characterize different activities and operations of the company, simply cannot be combined into two or three groups only.
4. There are different quantities of the financial ratios in the same groups. For example, someone may include three of them into the group of profitability indicators, while somebody may choose four or more financial ratios.
5. The list of financial indicators in the classification can cover different figures of financial indicators. It can range from 8 to 48 different financial ratios.
6. Most commonly used groups of financial ratios are the following: Profitability Ratios, Liquidity Ratios, Leverage Ratios, Turnover Ratios, Price Ratios, Additional Ratios.
The question is what are the reasons for the differences in the calculation of financial ratios and grouping techniques? The differences in financial ratios and group names can be explained by the following reasons:
a) variations in different countries' financial reporting forms and different names in some balance sheet, profit (loss), cash flow statement articles';
b) generally we investigate the financial reports of a specific economic sector, which shows exclusively the characteristics of this economic sector alone;
c) different English-speaking countries have historically formed names of the financial ratios that are understood completely differently. For example: shares and stocks, batch costing and job-lot costing, cash float and change fund, debenture and bond and etc.
d) professionals of many different fields write about the financial ratios: people from accounting, finance, statistics, management and others.
e) Financial ratios target different user groups: investors might want to use some rations more than the other, suppliers, banks and other users of the data choose other indicators.
Komentarų nėra:
Rašyti komentarą