Financial Management Assignment Example | Topics and Well Written Essays - 2000 words

Financial Management - Assignment Example The analysis of the data present in the financial statements helps the top level management of the organization to take a correct decision. The decisions taken after proper analysis of the financial statements are appropriate having reduced chances of flaws. The financial statement is known as the raw form of data which cannot be utilized by anyone without proper knowledge. In such case implementation of different types of analysis tools bring accuracy in the analysis process. Ratio analysis is one such important analysis tool which helps in the analysis of the financial performance of an organization. Ratio Analysis Any sustainable business needs effective financial planning. Ratio Analysis is an essential management tool which helps in improving the financial performance of an organization over time along with providing key indicators associated with the organizational performance (Siddiqui, 2006). The managers use ratio analysis for assessing the strengths and weaknesses of the or ganization based upon which new strategies can be evaluated. ... s financial performance, the financial ratios act as an indicator indicating the places where the company requires rectification for achieving competitive advantage. Moreover when the ratios are far above or below the industry standards then it indicate that the company needs to change its existing strategies for bringing their ratio values close to the industry average. There are mainly four types of ratios: 1) Liquidity ratio 2) Profitability Ratio 3) Solvency Ratio 4) Efficiency ratio Liquidity Ratio The liquidity ratios help in finding out whether a company is able in repaying its short term debt in a proper manner. This ratio is very significant because if any company fails in meeting its short term liabilities then it may even lead to bankruptcy (Gallagher and Andrew, 2007; Hitchner and Mard, 2011). High liquidity ratios signify that the organization is performing in an efficient manner for meeting the short term liabilities. In the context of liquidity ratio, two ratios of Kin gfisher Plc have been calculated. The first is the current ratio and the second is the quick ratio. Current Ratio Current Ratio is measured as: Current Ratio = Current Assets/ Current liabilities Calculation of Current ratio As on 1.1.2012 As on 1.1.2013 Current assets 2989 3068 Current liabilities 3050 2870 Current Ratio 0.98 1.07 The current ratio will help in finding out whether Kingfisher Plc is performing in an appropriate manner in order to meet the short term liabilities or not (Kuppapally, 2008). The current ratio of the company has increased from the year 2012 to 2013. This implies that the inventory value of the company has increased significantly. Kingfisher Plc is utilising the current assets in efficient manner for meeting the current liabilities. Quick Ratio Calculation of