Well understood! Generally,ratio analysis is about the relationship between the numerator and denominator.
Is there any example to understand changes in numerator and denominator impact on ratio?
it was more understandable and clear
For what purpose is Ready Ratios financial analysis used on most often?
Accounting - How changes to the numerator and the denominator impacts on
How changes to the numerator and the denominator impacts on the ratio
Each of the ratios stated above has a numerator and a denominator. For
example: Net profit/(average) Total assets. The net profit is the numerator
and the total assets the denominator. The ratio will be improved by
increasing net profit at a faster rate than total assets or decreasing net
profit at a slower rate.
* measure the ratio
* show how it was calculated
* explain the changes to the numerator and denominator that caused the
ratio to change
Looking at key items in the ratios in the tables above.
May be increased by (for decreases reverse the increase/decrease below)
* an increase in sales
* a decrease in price, which may stimulate extra demand
* an improved location
* increased spending on advertising and sales wages
* better quality
* more appropriate
* increased spending
* after sales services
* pre sales service
* extra services such as training
buying in bulk - a decrease in buying costs, an increase in carrying costs
cheaper items, risk of sacrificing quality
more expensive items may have greater appeal leading to increased sales
the margin between the cost price and the selling price is an important
factor in the success of a business
increased efficiency should be sought in use of expenses
all expenses should be linked to the contribution they make to profit
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