In the paper, discussed are the outcomes of what has been learned in class in so far as the financial sector is concerned. In this case, a wide range of topics have been learnt in class, and it has been found that the financial services are of crucial applicability in the economy of any country. Individually, exhausted are the financial ratios use in the measurement of the financial positions of companies and firms, the time value of money, the goals of financial management in any given entity as well the calculations of the net present value of assets and their applicability in the financial world. The financial ratios are of different types and serve diverse purposes in measuring the financial strength and capabilities of various organizations. The time value of money, on the other hand, helps in assessing the benefits of the finances in the cash flow basis. There are economic conditions which are factored in gauging the financial values at different seasons, hence helping in making various decisions concerning the management of the affairs of different activities of organizations. The time value of money also helps in making investment decisions for different firms as well as making highly precise decisions and projections based on the available financial information. Further discussed in the subsequent paragraphs are the outcomes of such disciplines along the course.
First, learnt are different financial ratios applied in the financial projections of the companies and firms. The investors and analysts developed them for use as critical analytical tools, techniques, and concepts which show the relative strengths of el as the weaknesses of the companies at hand. Such concepts, tools, and techniques form the basis of the primary analysis. The ratio analysis is a tool which was developed by the analysts for use in the performance of a quantitative analysis of numbers which are found in the financial statements. The ratios help in linking various financial statements together to establish their complex interrelationships. Such financial statements are comparable between companies as well as sectors and industries. The ratio analysis is one of the most commonly used fundamental analysis technique in the financial areas of different companies.
However, the financial ratios do vary across different sectors and industries hence the comparison between the entirely different companies of various sectors is not correct since their modes of application of financial ratios vary (Raiyani, J. R., Raiyani, J. R., & Bhatasna, R. B. 2011). It is thus quite reasonable and suitable to compare different firms in the same industry since they might have a similar use of selected finical ratios. The ratios facilitate the comparisons of figures found in the financial statement. The financial ratios help in the comparison of different elements within an organization as well as the financial performance of various organizations within an industry.
The ratios have been grouped into four different categories according to the roles they play in the financial sector. Such classes include the liquidity, activity, solvency, and profitability. The activity ratios are used in the measurement of the efficiency in which a company utilizes its existing assets. The investors will thus get an overall idea regarding the operational performance of the firms at hand. The ratios measure the number of times per year in which the inventory and stock get replenished. The inventory turnover ratio can get calculated by dividing the cost of goods sold by the average inventory. The higher turnover shows that the inventory is sold at a higher rate while a lower inventory turnover shows that they go slowly, thus the need for making the proper adjustment to boost the inventory turnover. The receivable turnover ratio is calculated by dividing the net revenue by the average receivables. It measures how efficiently and quickly can collect the outstanding bills. The payables turnover measures how quickly the company pays for its money that is owed to the suppliers. It can be calculated by dividing the purchases on credit by the average payables. Asset turnover measures the efficiency in which the company puts in use its assets in the generation of revenues. It is calculated by dividing the net revenues by the total assets.
The liquidity ratios include the current ratio, quick ratio, and cash ratio. They are in most cases relevant to creditors. They measure the ability of firms to meet its short-term financial obligations (Gibson, Charles H. 2012). The solvency ratios are used in measuring the ability of companies to meet their long-term financial requirements and responsibilities. They include the debt to asset ratio, the debt to capital ratio, the debt to equity ratio, and an interest coverage ratio. The profitability ratios measure the ability of firms to earn the adequate returns. They include the gross profit margin, the operating profit margin, the net profit margin, the return on assets and return on equity.
Additionally, learnt are the goals of financial management which include the maximization of the wealth of shareholders. The time value of money, including the present and future values, helps the investors in making investment decisions. The above-learnt issues surrounding the financial sector will help me in the future since I shall be working in the financial industry. They will come in handy for analyses.
Gibson, Charles H. (2012). Financial Reporting and Analysis + Thomson One Printed Access Card. South-Western Pub.
Raiyani, J. R., Raiyani, J. R., & Bhatasna, R. B. (2011). Financial Ratios and Financial Statement Analysis. New Delhi: New Century Publications.
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