Preparing ratio analysis

With the preparation of a cash flow statement, we now have the core content of a set of financial statements. These financial statements, now referred to as a statement of financial position, statement of comprehensive income, and cash flow statement, along with explanatory notes and schedules, are distributed to shareholders of the company and government. It is also these financial statements that are available to other interest groups, such as investors and holders of the debt capital of the company.

The financial statements provide a significant amount of information about the company and its results for the period under review; however, on their own, they are not adequate for decision-making. Ratio analysis provides an in-depth look at the details behind the figures. The following screenshot is an example of a set of ratio analyses:

Figure 2.11 – Ratio analysis

By looking at the relationship between strategic pairs of...