Understanding Financial Ratios

Course : Managerial Finance Lecture : Marc Credit Hours : 3 Credits Semester Sessions : 3 Semester, 2021/2022 Session Prepared By : Kenzo LECTURE NOTES Understanding Financial Ratios Financial ratios are the main thing to assess and describe actually development of a company's financial condition. Ratio is a financial analysis tool the most common and widely used. Ratios are in the form of numbers displayed in a form period that will be able to be compared from one number to another and can be. Concluded The results explain the company's current financial situation. When the ratio results have been in know then the results of the calculations are interpreted to be able to understand at certain points the state of the company. So with an analysis tool in the form of this ratio it will be can explain and describe to analysts the condition of the company with results good or bad from the numbers made as a comparison. So then you can repairing important parts from the less positive side which will be improvements in future. The purpose of financial reports is to present reports concerning the financial position, performance and changes in a financial position company which will later be useful for all users in decision making. In accordance with the financial accounting standards applicable in Indonesia, the financial reports usually consists of a balance sheet, profit and loss, and changes in capital, but there are companies that prepare a report on the sources and use of funds because this report will be known how the company manages and uses the funds it has. This is where the analytical role of a financial manager is to be able to observe in detail can solve problems and polish parts that are considered less good so become one good part that blends with each other. Financial ratio analysis is a series of indexes connected to accounting in financial reports with The intention is to rank the financial performance of a company or organization. There are two sources that will be analyzed, the first is the balance sheet, namely the report systematic information about the assets, liabilities and capital of a company at a certain time, secondly, profit and loss is a systematic report about income, costs, costs, as well as profits and losses obtained by a company during a certain period. When carrying out comparative analysis of financial statements, it is best to have a minimum or a minimum It is better to use index numbers for data from more than 3 years. Because all the data The analyzed finances are linked to index numbers in the form of percentages. With If you analyze more than 3 years, you will find a tendency or trend in the position whether finances are increasing, constant or decreasing. Financial ratios are needed by everyone Broadly speaking, there are two interests in the company, both internal and external Groups with an interest in a company's financial ratios are: 1. Company management is used to plan, analyze so that it can conclude that the company's performance so far can even be compared with industry average performance and can evaluate the direction the company is moving in a good direction or vice versa. For example, if a company has high production costs, the manager.can evaluate to try to analyze why this could happen and what efforts should be made will be done to reduce production costs. 2. Company managers will use financial ratio analysis to conclude and decide on th possibility of merging with another company. 3. Investors and credit managers look at financial ratios in terms of measuring the level of risk the company from the resulting ratios is used to avoid potential.risks faced by creditors, to see how big the level of profit is capital or funds included. The point is to see if this company is the right fit or not and investors will usually compare the financial ratios of several.companies in the same industry to decide whether to invest in the company.the best and most profitable by providing guaranteed returns high with a low level of risk. Ratio analysis describes a relationship or consideration between certain amounts with other amounts. Ratio analysis can explain to the analyst what is good and the poor condition or financial position of a company, especially when compared with a standard comparison ratio. To determine whether the Liquidity ratio figure is good or bad, The solvency and profitability of a company requires a comparison tool, namely the standard ratio. Standard Ratio is the average ratio of all companies in the industry. Standard The ratio is not a definite comparison figure but can be used as a guide For the analyzer, standard ratios do not exist in a fixed form, so standard ratios can made with the following steps: 1. Collect financial reports from companies in the industry then calculate the ratio figures for each company 2. Arrange the ratio numbers from highest to lowest and delete the ratio which is extreme (too low or high) then calculate the average ratio and the ratio This is used as the standard ratio Next, we will explain how comparisons are usually carried out by para analyzer, basically there are 2 types of ways to compare in general, namely: 1. Compare the current ratio with past ratios historical) or with ratios estimated for future times from the same company. 2. Compare the ratios of a company (company ratio) with the ratios similar to other similar companies (ratio industry) at the same time.