The Extensive Use of Financial Ratios by Both Practitioners and Essay

The Extensive Use of Financial Ratios by Both Practitioners and Researchers - Essay Example One of the major reasons for using financial ratios is to compare different firms in the same industry regardless of the size of the organizations. For instance, Return on Equity (ROE) can be calculated by using two variables; profitability or income of the organization and its equity therefore even if the size of the firms differs a lot but still these two firms can be compared to each other (Gowthorpe, 2006). As a result, financial ratios are helpful in controlling different factors while comparing different companies operating in the industry and allowing researchers a platform to compare firms which might have not been possible without these ratios. Similarly, besides controlling the size of the organization, financial ratios control other factors like technology and assuming that these factors are uniform within the same industry. ... he firm is ignored, as investors investing in a riskier firm would like to demand higher return on investment therefore the firm should earn higher returns in order to attract investors Therefore all this considerations or limitations of financial ratios have raised concerns on important issues that are ignored by the financial ratios but despite of this fact, financial analysts, researchers and practitioners have been continuously using financial ratios. ADVANTAGES AND APPLICATION OF USING FINANCIAL RATIOS There are several advantages and applications of using financial ratios which are as follows: ENABLES COMPARISON BETWEEN DIFFERENT FIRMS Financial ratios are helpful in allowing comparison between different firms and their performance and therefore management of the firm is able to take decisions considering its competitors in the industry and overall averages in the industry (Bodie, Kane, & Marcus, 2004) BENCHMARKING TECHNIQUE Because of financial ratios, companies are able to se t their performance targets and measures against the leading firms in the industry and as they aim high, they are able to improve their overall performances (Heaton, 2002). FINANCIAL RATIOS ENABLE ORGANIZATIONS TO EVALUATE FROM THEIR PAST PERFORMANCES Financial ratios allow organizations to compare their past performances against their current performance and in this way they are able to identify whether they are going in the right direction or not (Correia, Flynn, Uliana, & Wormald, 2007). FINANCIAL RATIOS ARE HELPFUL IN IDENTIFY DIFFERENT COSTS AND EXPENSES THAT CAN BE REDUCED With the help of financial ratios, management is able to identify different costs and expenses of the company that have increased over the last few years or costs and expenses in comparison to their competitors and

Fiscal Deficit and Economic Growth in an Economy Term Paper

Fiscal Deficit and Economic Growth in an Economy - Term Paper Example Fiscal Deficit and Economic Growth in an Economy India is a member nation of BRICS and the country is identified to be a developing economy. The country holds a global standing with respect to ‘gross national product’ (GDP) and ‘purchasing power parity’ (PPP). Multiple ups and down are identified within the economic structure of the country. However, despite of all the tediousness within its economic structure, the nation has projected remarkable survival instincts and has eventually displayed an appreciable response against its economic and fiscal issues. Such situations often results in deteriorating the rate of economic development as a result of the financial incapability of the government in context to spending more on the economic developmental procedures. Irrespective of all these economic achievements, multiple economists in the present scenario have still questioned regarding the fiscal stability of this nation, which in the practical scenario can be considered to be on the verge of collapsing (Ku mar, 2014). The increased provision of government subsidies within public distribution services and sectors can be considered as the prime factors that has crippled the revenue generating capabilities of India. Understanding the gravity of the destabilizing economic and fiscal situation, the present government has shown its active participation towards the implementation of appropriate fiscal modifications within the New Year’s budget.