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Chapter 3
Assessing performance and position
6.1 Ratios
The purpose of financial reporting is to provide investors, lenders and other creditors
with information that will help them to make decisions about providing resources to
an entity.
Calculating ratios may help these users to better understand an entity’s financial
performance and position and so may help when making investment decisions.
Short term
Profitability liquidity and
efficiency
Ratios
Long term
liquidity (capital
structure)
Ratio analysis was covered extensively in your prior studies. If you
cannot remember financial statement ratios then read Section 6 in
Chapter 3 of your Study Text.
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