Financial Ratio Analysis is a strategic management tools that helps managers to determine the trends in a particular business. This is done by comparing the average performance of other similar business types to that of the company being assessed. Aside from eternal comparison, companies applying financial ratio analysis also have to compare the performance ratio for the current year with that of successive years. One of the strengths of the financial ratio analysis is that it serves as an all-important early warning system that companies can use to determine any problems within the company that may result to losses if left unresolved. This means that the position of the company relative to that of the competition will provide are better picture of its performance than just looking at their financial statements.
However, the tool also has its downsides one of which is that the findings of the analysis will only provide answers to the “what” questions or it only provides quantitative data. This means the analysis goes only to the extent of determining what is wrong and does not provide any possible solutions. In order fort his weakness to be minimized, the user of the analysis have to pair it with
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