Week Two Learning Reflection
Oct 20, 2014
Running Head: Week Two Learning Reflection
This week Learning Team C has discussed the differences between comparative and ratio analysis. We also differentiated and shared the purpose and importance of each analysis as well as provided examples for both comparative type analysis and ratio type analysis, as can be seen below. Ratio analysis is based on items found in the financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item or a mixture of items to another item or combination are then added. Ratio analysis is used to form an idea of various aspects of a company’s operating and financial health such as its ability to run smoothly, what assets are readily on hand if needed to convert to cash, and what kind of profit the company is producing or making, if it is a positive or negative. Ratio analysis can provide an early warning sign of a possible improvement or decline in a company's financial situation or performance. Comparative analysis looks at the financial operation of a business, investors are interested in the sustainable earnings of a business (main part), when investors are interested in making comparisons of a company/business from period to period (Kimmel, Weygandt, & Kieso, 2011). The business world relies on several different types of comparisons to improve the decision making of financial information. Intracompany basis, Intercompany and Industry averages. Intracompany are comparisons within the company that is useful to identify changes in financial relationships and significant trends. Intercompany comparisons are with other companies provide insight into a company’s competitive position. Industry averages are comparisons information about the company’s relative position within the industry (Kimmel, Weygandt &Kieso, 2011). Businesses use comparative analysis ratio as a tool for evaluating financial measures...
References: Kimmel, Weygandt, Kieso, (2011). Accounting 4th Edition. Hoboken, New Jersey.
Ratio Analysis. (2014). Retrieved from http://www.investopedia.com/terms/r/ratioanalysis.asp
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