I came across the article that discusses the major players in ratio analysis process. In order to understand ratio analysis we have to look at its functions and what influence it has on the daily financial management operations. Ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers.
Credit analysis departments determine the amount of credit that may safely be given to loan applicants. Data as to credit risk are supported by agencies organized for that purpose. The most common goal for credit analysts is to analyze current credit data and financial statements of individuals or firms to determine the degree of risk involved in extending credit or lending money. Prepare reports with this credit information for use in decision-making.
Stock analysts’ main goal is to help investors make decisions, a mission that encompasses not only rating stocks, but also providing industry expertise, trend-spotting, evaluating scuttlebutt and gossip, interviewing management and customers, and shaping mountains of raw data into coherent projections.
Managers are responsible for the processes of getting activities completed efficiently with and through other people, and setting and achieving the firm’s goals through the execution of four basic management functions: planning, organizing, leading, and controlling. Both sets of processes utilize human, financial, and material resources.
The ratios would differ greatly due to the difference in the nature of business and each occupation’s expertise. Each branch is interested in the different outcomes, which still imply one goal – maximization of shareholders’ wealth.
Profit margins and turnover ratios vary from one industry to another. Let’s look at the difference you would expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery chain and a steel company.
Mega grocery stores, discount...