Limitations Of Financial Ratios In Evaluating Organisational Performance Case Study
The Short term solvency ratio computes whether the income of an organization is adequate to deal with the fleeting commitments (Droms & Wright 2015). It incorporates current ratio, Acid Test ratio and Cash Flow from Operations to Liabilities. I have computed all the three proportions for the organization.
Firstly, Current Assets measure the liquidity which is truly imperative to manage liabilities inside a year (Droms & Wright 2015). The standard is 2:1; lower than this shows a lessened capacity to pay in an opportune way. Current ratio aftereffects of Santos Ltd. for the year 2014 and 2013 are 1.06 and 1.2 % separately which implies in both the years, the organization 's capacity to pay is less, which can trouble the creditors to put resources into it.
Besides, the acid test ratio measures the capacity of an organization to utilize its present money or …show more content…
Include in your comment the benefits of including non- financial performance indicators to assess the performance of Santos Ltd.
Answer 5- In spite of the fact that each and every organisation depend on financial ratios, here are a few limitations of ratios that all examiners must know about:
5.1 Limitations of Financial Ratios in measuring organisational performance
Cannot give general conclusion of the organisaton:
There is no perfect approach to think and compare about all of the ratios at once and reach at a conclusion. A few proportions may give great numbers while the other may give negative figures.
Accurate for small companies:
Budgetary proportions give genuine picture in the little associations. Wide associations are more confounded as far as numbers or figures and it is hard to get dependable proportions there.
Different strategies for computation:
There can be different strategies to compute the same proportion, which may make disarray at