Advantages and Limitations of Financial Ratios - Accounting and Finance Assignment Help

Assignment Task:

Assignment Guidelines and Your Marks (Examples) 

• You are encouraged to employ more relevant ratios with your chosen data. 

• It is sufficient to calculate the ratios over two years (not three years). 

• Although the word count is 1,000 words (quantity), this is a guideline only. I am more interested in the quality of your interpretation (not quantity). This is a numerical (quantitative) module (not a qualitative module). 

• Please include a copy of the income statement, balance sheet, and any other information in the appendix; a scanned page or screenshot is sufficient. 

ASSIGNMENT ONE 
Critically discuss the advantages and limitations of financial ratios as a tool for financial analysis. (15%) 

STUDENT’S ANSWERS: The advantages of financial ratios are that they to enable a company to evaluate its financial performance year by year, while the limitations are that the financial ratios have to be compared with the previous year’s figures or with the industry standard. 

STUDENT’S ANSWERS: There are several advantages of financial ratios. First, the ratios assist companies to evaluate their progress based on the company’s own strengths and weaknesses such as its profitability, leverage, liquidity, activity, value, and others (Atrill, 2017). Second, a company will be able to compare its progress with its competitors. Based on the financial ratios’ comparison, a firm then can plan accordingly to implement a counteractive strategic plan to keep abreast and ahead of the competition (Hillier, 2016). Unfortunately, financial ratios are limited by being applied merely to a company’s financial aspects; hence, they neglect a company’s non-financial angles. 

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