We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Profitability Ratios: Short Term Liquidity Essay Sample

essay
  • Pages: 2
  • Word count: 405
  • Rewriting Possibility: 99% (excellent)
  • Category: economics

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Introduction of TOPIC

Planning is very important to companies and firms, they need to analyze their various ratios and from that they are able to draw conclusions and make predictions for the long run. Financial planning is a process where accountants estimate the capital needed and they determine who their competition is. There are various ratios that are needed in order to determine how a company is doing financially. These include the following: profitability ratio, short term liquidity & efficiency ratio, working capital, long term solvency and shareholder ratios. This report will focus on the long-term solvency and shareholder ratios for Asos Ltd. Since there was a lack of data it was impossible to calculate the gearing ratio, interest cover, return of equity and the dividend payout ratio. Therefore this report will discus what the terms mean and why the ratios are missing.

Many companies need to borrow money in order to

Sorry, but full essay samples are available only for registered users

Choose a Membership Plan
have an appropriate amount of funds to expand their company, because they need to invest in new apparatus and machinery. Sometimes the investment can be funded from profits that have been made or it can come from issued share, however it is most likely to be borrowed. The more interest they pay then the more money needs to be borrowed. However borrowing money is always a risk since the company has to pay the interest even if the investment is successful or not. If they are making losses they will still have to pay interest. The more capital the company borrows the bigger the risk is. When one looks at the different accounts they would want to analyze how big the risk is and in order to do this one must use the gearing ratio.

What does Gearing Ratio mean?
The gearing ratio is a term that is used to describe a financial ratio that compares the owner’s equity or capital that comes from borrowed funds. Gearing is essentially a measure of financial leverage, it demonstrates the amount to which a firm’s activities are funded by the owner’s funds against the creditor’s funds.

As outsiders looking at a set of accounts we therefore want to assess how big that risk is, and to do this we use another ratio. This ratio is known as the GEARING RATIO.

We can write a custom essay on

Profitability Ratios: Short Term Liquidity Essay S ...
According to Your Specific Requirements.

Order an essay

You May Also Find These Documents Helpful

Ten Principles of Economics

The administration of society\'s assets is vital in light of the fact that assets are rare. Scarcity alludes to the constrained idea of society\'s assets. Economics includes the investigation of how society deals with its rare assets In many social orders, assets are allotted through the consolidated choices and activities of a huge number of family units and firms. Hence, financial analysts must examination: 1) How individuals decide 2) How they connect with each other 3) Forces and patterns that influence the economy all in all 10 Principles of financial aspects The conduct of an economy mirrors the conduct of people that make up the economy. Henceforth, we start our investigation of financial matters with the four standards of individual basic leadership. Princple 1: People confront exchange offs Making choices require exchanging off one objective against another. Example: For consistently an understudy considers one subject, she surrenders a hour she could...

The key elements of the financial plan

One of the fundamental tools used in managing account, profit forecasting and pricing strategies is definitely the “break-even analysis”, that can be defined as “a technique for analysing how revenue, expenses and profit vary with changes in sales volume or simply it is the analysis that enables any professional organisation to determine the break-even point”. The “break-even point” or BEP can be considered as “the point (level of production) in which a company generates the same amount of revenues and expenses during an accounting period (Revenues = Total costs). No profit and no loss have incurred. Since revenues equal expenses, the net income is zero. The company did not lose money, but it also did not gain any money either. It simply broke even during that period” When computing the break-even analysis several pieces of information (variables) are needed: - Direct/indirect expenses; - Fixed/variable costs (considering that fixed costs incur...

Managing fixed and variable costs in a...

Explain the fixed and variable costs in relation to the organization In management accounting, cost management has a crucial role and finds its foundations in understanding “cost behavior”. “Cost behavior analysis” can be defined as “the study of how cost changes when there is a change in an organization’s level of activity”. Managers need to analyze the behavior of three different types of costs: - Fixed costs; - Variable costs; - Semi-Variable (or mixed) costs. A “Fixed cost” can be defined as “a cost that does not change with an increase or decrease in the number of goods or services produced or sold”. It is time-related. “Fixed costs remain constant as they are not affected by the changes in the activity. It does not make a difference if the organization is producing/selling or not. Fixed costs will still be paid. Example of fixed costs can be: Rent for the space...

Popular Essays

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?