.
355 Points
Joined July 2008
Hi juzar,
I think ratio analysis is the most widely used tool for determining the financial position of a company.. but it may not be the best one…
The angle of viewing the financial position necessarily depends on the need and circumstances of the users of such information….
For example, a banker consider DSCR, ICR etc as an indication of financial position.. here they look into whether the company has adequate funds to cover the loan repayments…they may not consider the growth of the company(other than negative growth) till its surplus are available for repayment of adv…
At the same time for an investor, growth is an important aspect to be judged….
See that, the financial position of the same co. is judged in different ways and perceived in different angle by different users according to their needs….
Therefore, we cannot say a single tool for deciding the position; but we should use human logic in those situations and should merge different tools & techniques to obtain what we want to extract from that bal sht…
But in general Ratio analysis, fund flow statements, CFS etc together provides almost all available perceptions to be viewed in judging the fin position of a company….. and also, ratio analysis will be effective only when a right ratio is used in the right circumstances..
CAclubindia
