FINANCIAL RATIO ANALYSIS



For a financial analysis course, already familiar with the name of financial ratio analysis, but for a new struggle in the economic field is certainly less familiar with the name of financial ratio analysis. Before knowing what the advantages and limitations in the use of financial ratio analysis, of course, we have to know in advance what is meant by the ratio. Understanding of the ratio itself is a measurement tool that is always used by a company in analyzing financial statements. Ratios can describe or explain a relationship or it could also be a consideration between the number of certain other amounts. The conclusion by using analysis tools such as financial ratios, we can explain and illustrate the analyzer is good or bad about the state's financial position in a company from one period to the next.

Understanding financial ratio analysis is an analysis that links the estimated balance sheet and income statement for each other, which gives an illustration about the history of the company as well as an assessment of the circumstances of a particular company. The usefulness of this financial ratio analysis, allowing a financial manager can predict the reaction of potential investors and creditors so as to facilitate in obtaining additional funds.
A ratio does not have a meaning that is valuable when done alone, but should be compared with other ratios so that the ratio becomes more perfect as well as to perform this analysis, it can be done by comparing an achievement in the current period with prior periods. So it can be a tendency for a certain period, other than that this ratio analysis can also be done by comparing with similar companies, so that it can be seen how the finances of the company.
In holding an interpretation and analyzing a company's financial statements, an analyzer requires the existence of a certain size. While often used as benchmarks in the financial analyzes is the ratio. The use of ratios can explain the relationship between the two types of financial data. Many kinds of ratios, while one of the causes of this ratio is made according to the needs of the analyzer.
According to Bambang RJ (1992), financial ratio analysis is a process of determining a critical operation and financial characteristics of a company derived from the accounting data and financial statements. The purpose of this analysis is to determine the efficiency of the performance of a manager in a company that can be realized in a financial records and financial statements.
Basically in using financial ratio analysis can be done with two types of comparison, some of them:

  • Comparing the ratio of the current (present ratio) of the ratios of time in the past (historical ratio) or it could be compared with the ratios that have been predicted for the future of the company.
  • Comparing the ratios of a company with a similar but ratios derived from the other companies of the same type.

Under these conditions, the benefits of the ratios entirely contingent upon the ability / intelligence a data analysts in interpreting data analyzes.
There are several advantages of ratio analysis if we compared with other analytical techniques. according to Sofyan (1998) superiority ratio analysis include:

  1. The ratio of the numbers and statistical overviews easy to read and easy to interpret.
  2. Ratio as a substitute for a simple tool which can present with an information ratio that is quite different from the presentation of financial statements that are very detailed and complicated.
  3. Can know the company's position in other industries
  4. Ratio analysis is very useful to be used as fill material in the decision-making models and predictive models.
  5. Can be a standard size companies
  6. It is easier to compare one company with another company or to gauge the development of the company periodically.
  7. Facilitate see the trend of the company and can make predictions for the future.

The limitations of the analysis of this ratio, we need to understand that we are not one time use. Based on the opinion of Sofyan (1998) some of the limitations of ratio analysis include:
a.    Difficult to choose the right ratio that can be used for the benefit of users
b.    There are limitations in the financial statements as the financial statements contain too much approximation may be judged mediocre or objective, the acquisition value is not the value of the market price, the classification of the report, the recording method that is illustrated in the accounting standards that would commonly be applied differently in every company.
c.     The absence of data to calculate the ratio.
d.    No synchronization of existing data
e.    Comparing with companies with two different methods.

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