RSM220H1 Chapter Notes -Jato, Income Statement, Asset

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30 May 2014
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Topic #5 worksheet: financial analysis techniques (ratio analysis) Lg-1: explain the usefulness and limitations of the tools and techniques. Key points to know: financial analysis is ultimately contextual and purpose-driven. In other words, there is always a reason why you are performing the analysis. You need to be clear about the objective of the analysis: the tools and techniques that you use will depend on your purpose. The usefulness of financial analysis is to provide valuable insights and additional questions to ask in arriving at a particular decision. Each individual ratio is a basic indicator , but it does not by itself provide an explanation of why something happened. To get the most value out of financial analysis, you need to understand how these ratios relate to one another and to the business model (and industry) of the company you are analyzing. This requires experience: there is no single authoritative source providing rules about how particular ratios are calculated.

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