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1. Financial Ratio Analysis 1.1 Introduction As part of the system of financial control in an organisation, it will be necessary to have ways of measuring the progress of the enterprise, so that managers know how well the company concerned is doing. The financial situation of a company will obviously affect its share price. The answer to some of the following questions can be obtained from accounting reports produced by the company: i. Is the company profitable? ii. Is the company growing? iii. Does the company have satisfactory liquidity? iv. Is the company's gearing level acceptable? v. What is the company's dividend policy? The usual way of interpreting accounting reports is to calculate and then to analyse certain ratios (Ratio Analysis). The key to obtain meaningful information from ration analysis is comparison (that is, comparing ratios over time within the same business to establish whether the business is improving or declining, and comparing ratios between similar businesses to see whether...

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