Interpreting Financial Reports

Companies like ABC SDN BHD, a corpo balancen in Malaysia prepare and furnish fiscal statements on a regular basis for the excogitation of providing stakeholders reports of the troupes financial stand. However, accounting is not easy to analyze regarding how a particular association is doing financially in relation to others in the industry. One of the best ways to compare two businesses is to make a ratio digest on the companionships financial statements. A ratio analysis is commonly practise in financial statements that looks at various numbers, such as net make or total expenses and analyze the relationship between each other.According to Parrino, financial ratios are used in financial analysis to eliminate problems caused by comparing two or more companies of different surface or when looking at the same company over time as the size changes (p. 85) pecuniary balances are grouped by their purpose notwithstanding the most common ratios are Liquidity, Debt, Turnover, and Profitability. The key users of financial ratios have variations. Short-term creditors may use liquidity ratio. Potential lenders or existing lenders may use leverage ratio, and top corporations may use turnover ratio.Investors and stockholders may be more interested with positivity ratio to get their culture. The two most common Liquidity Ratio are Current and mobile Ratio. Inventory Turnover Ratio, Accounts Receivable Turnover or Total Asset Turnover ratios back tooth be used to determine a companys turnover or cogency ratio. To determine a companys leverage, the Debt Ratio or the Debt-to-Equity Ratio is the preferred tool to use. The Return on Assets Ratio can determine the profitability of the company,The financial highlight of ABC SDN BHD, a corporation in Malaysia describes profitability, liquidity, assets, and capital. The companys profitability shows a decrease in turnover, recovery of earnings, and lower cost of sales but higher total operate expenses. The companys l iquidity shows a satisfactory liquidity standing and experienced cash flow inflexibility. The companys asset management shows a reduced efficiency of the management of units and assets, lengthened collection but shortened payment periods, and a good inventory control.The companys capital structure and solvency undertaken a much greater on-going liabilities than long-term liabilities to finance its operation, and the current liabilities are reported to be rising. There is a lower leveraged for the group more dependent on equity than debt to fund its assets. Through financial statements, a company can compare and rate their murder with related industry. The key is to select companies to invest in and compare rate of returns, future terms, and evaluate agency and weak points.Comparative study of ratios and benchmark are useful for investors and management. Management can use it to get information for future decision-making process, and investors can analyze related risk. According t o Northwest Farm Credit Service, a ratio greater than 1. 50 is considered good, between 1. 00 and 1. 50 is descent, and less than 1. 00 is not promising. Equivalent to at least 20 % of total annual operating expenses is fakir for debt to assets ratio and should be less than 30 % to be estimate of as a good one. 30 to 50 % descent and greater than 50 % is considered poor.Operating margin of 25 % or greater is good, 10 % to 25 % descent, and less than 10 % is below average (2008) Ratio similarity provides important information to businesses and potential investors and shareholders. However, although ratio calculation provides a glimpse of the financial status, of a company, it can be misleading if not interpreted properly. Fluctuations occur from quarter to quarter and numbers can change, depending upon sales, stocks, revenue, and operating cost. Ratio comparison is a valuable toot if caution is taken into consideration.