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what is the industry average for the profitability ratio of the net profit margin for the NAICS code 721120.

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13y ago

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What are the advantages and disadvantages of financial ratios?

Financial ratios can be used for comparison • between two or more companies (ex: comparison between ICICI and HDFC Banks) • between two or more industries (ex: comparison between the Banking and Auto industry) • between different time-periods for the same company (ex: comparison on the results of the company in the current financial year and the previous year) • between a single company and the industry performance Ratios are generally meaningless unless we benchmark them against something else. Like say past performance or another company. Ratios of firms that operate in different industries, which face different risks, capital requirements, competition, customer demand etc can be very hard to compare.


How can management use financial ratios?

Financial ratios can be used for comparison • between two or more companies (ex: comparison between ICICI and HDFC Banks) • between two or more industries (ex: comparison between the Banking and Auto industry) • between different time-periods for the same company (ex: comparison on the results of the company in the current financial year and the previous year) • between a single company and the industry performance Ratios are generally meaningless unless we benchmark them against something else. Like say past performance or another company. Ratios of firms that operate in different industries, which face different risks, capital requirements, competition, customer demand etc can be very hard to compare.


What are the potential problems and limitations of financial ratio analysis?

'''''Limitations of financial ratio analysis''''' # Many ratios are calculated on the basis of the balance-sheet figures. These figures are as on the balance-sheet date only and may not be indicative of the year-round position. # Comparing the ratios with past trends and with competitors may not give a correct picture as the figures may not be easily comparable due to the difference in accounting policies, accounting period etc. # It gives current and past trends, but not future trends. # Impact of inflation is not properly reflected, as many figures are taken at historical numbers, several years old. # There are differences in approach among financial analysts on how to treat certain items, how to interpret ratios etc. # The ratios are only as good or bad as the underlying information used to calculate them. Although ratio analysis is very important tool to judge the company's performance , following are the limitations of it. 1. Ratios are tools of quantitativeanalysis, which ignore qualitative points of view. 2. Ratios are generally distorted by inflation. 3. Ratios give false result, if they are calculated from incorrect accounting data. 4. Ratios are calculated on the basis of past data. Therefore, they do not provide complete information for future forecasting. 5. Ratios may be misleading, if they are based on false or window-dressed accounting information


What are possible limitations of ratio analysis?

Limitations of financial ratio analysisMany ratios are calculated on the basis of the balance-sheet figures. These figures are as on the balance-sheet date only and may not be indicative of the year-round position.Comparing the ratios with past trends and with competitors may not give a correct picture as the figures may not be easily comparable due to the difference in accounting policies, accounting period etc.It gives current and past trends, but not future trends.Impact of inflation is not properly reflected, as many figures are taken at historical numbers, several years old.There are differences in approach among financial analysts on how to treat certain items, how to interpret ratios etc.The ratios are only as good or bad as the underlying information used to calculate them.

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What are the advantages and disadvantages of financial ratios?

Financial ratios can be used for comparison • between two or more companies (ex: comparison between ICICI and HDFC Banks) • between two or more industries (ex: comparison between the Banking and Auto industry) • between different time-periods for the same company (ex: comparison on the results of the company in the current financial year and the previous year) • between a single company and the industry performance Ratios are generally meaningless unless we benchmark them against something else. Like say past performance or another company. Ratios of firms that operate in different industries, which face different risks, capital requirements, competition, customer demand etc can be very hard to compare.


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How can management use financial ratios?

Financial ratios can be used for comparison • between two or more companies (ex: comparison between ICICI and HDFC Banks) • between two or more industries (ex: comparison between the Banking and Auto industry) • between different time-periods for the same company (ex: comparison on the results of the company in the current financial year and the previous year) • between a single company and the industry performance Ratios are generally meaningless unless we benchmark them against something else. Like say past performance or another company. Ratios of firms that operate in different industries, which face different risks, capital requirements, competition, customer demand etc can be very hard to compare.


What are the potential problems and limitations of financial ratio analysis?

'''''Limitations of financial ratio analysis''''' # Many ratios are calculated on the basis of the balance-sheet figures. These figures are as on the balance-sheet date only and may not be indicative of the year-round position. # Comparing the ratios with past trends and with competitors may not give a correct picture as the figures may not be easily comparable due to the difference in accounting policies, accounting period etc. # It gives current and past trends, but not future trends. # Impact of inflation is not properly reflected, as many figures are taken at historical numbers, several years old. # There are differences in approach among financial analysts on how to treat certain items, how to interpret ratios etc. # The ratios are only as good or bad as the underlying information used to calculate them. Although ratio analysis is very important tool to judge the company's performance , following are the limitations of it. 1. Ratios are tools of quantitativeanalysis, which ignore qualitative points of view. 2. Ratios are generally distorted by inflation. 3. Ratios give false result, if they are calculated from incorrect accounting data. 4. Ratios are calculated on the basis of past data. Therefore, they do not provide complete information for future forecasting. 5. Ratios may be misleading, if they are based on false or window-dressed accounting information


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Steps in ratio analysis?

Steps in 'Ratio Analysis'Step 1: Collection of information, which are relevant from the financial statements and then to calculate different ratios accordingly.Step 2: Comparison of computed ratios with the past ratios of the same organisation or with the industry ratios.Step 3: Interpretation, drawing of inferences and report-writingClassification of Ratios