Problem 1: Financial analysts will use ratios to compare performance of companies in same industry. Lenders will often use ratio analysis to help them decide whether to lend to an individual in the first place and whether to continue their financial support. Business owners and managers also use ratios to assess the financial performance of their business. Such ratios might include interest cover, earnings per share, gearing and net profit margin.
Required:
Question1. Describe the usefulness of ratios analysis to the above named users of accounts making reference to three dimension of financial performance.
Question2. As a potential shareholder point out the ratios which will be of interest to you and the direction of these ratios.
Question3. Explain four limitations of ratio analysis.