Financial ratios Essay Example | Topics and Well Written Essays - 500 words

fiscal ratios - Essay ExampleThere are different ways in which financial ratios can be make betterd by the firm and hence its performance. However, it is critical to note that financial ratios can also be amendd with the help of creative accounting techniques such as using up of different depreciation methods, enumeration value methods etc.Financial ratios are typically chracterised into five groups and each group consists of different ratios that blueprint the performance of the firm in that category. For example, liquidity ratios comprises of current ratio as well as caustic test ratio. In order to improve upon the liquidity ratios of a firm, a firm can correspond its use of working capital. Since liquidity ratios mostly indicate the firms ability to pay mutilate its short term liabilities with its short term assets therefore it is really important that both the current assets as well as current liabilities are managed in optimum manner. In order to improve this ratio, a fi rm can decrease its reliance on the short term finance and shall encourage the use of internally generated funds to finance its short term working capital requirement. Since current assets are considered as non-productive assets it is therefore important that a balance must be achieved between the current assets and current liabilities to select the ratios in most favorable condition.Similarly, efficiency ratios indicate the efficiency with which the assets of the firm are managed by the managers. To improve the efficiency ratios, a firm can further tighten its credit extension policy to improve its receivable turnover. This can also be achieved by making the sales activity more iron so that inventories are rotated more frequently rather than piling them up after their production. A higher inventories turnover therefore indicates the ability of the firm to convert its inventories into cash or receivables through sales generation.Profitability ratios can be