financial ratios

Question 1

what are financial ratios?

Answer 1

• quantitative metric used to valuate & analyse financial performance
• no universal “ideal” ratio result

Question 2

what is horizontal analysis used for?

Answer 2

used to analyse company performance over time (trend analysis)

Question 3

how do you calculate horizontal analysis?

Answer 3

1. look at £ change (positive or negative)
2. convert to % change to show changes across years

Question 4

what is vertical analysis?

Answer 4

calculates relative proportions of different items within a financial statement. allows comparisons across time and between companies

Question 5

how to calculate vertical analysis on balance sheets within the same year?

Answer 5

divide all line items by total asset value

Question 6

how to calculate vertical analysis on income statements within the same year?

Answer 6

divide all line items by total revenue