Business Revision - Finance

Benefits/Advantages of these Ratios:

• Profitabilty ration will show you how profitable a business is
• They are a measure of overall performance
• They can be used to examine how well a business is operating
• Profitability rations can be used to compare and contrast current perfomance to past perfomance - an increase in the ratios is viewed as a positive trend

Drawbacks/Disadvantages of using these Ratios:

• Ratios will not tell a business what is going right or wrong
• Ratios are useless in isolation
• Ratios relate to a particular point in time
• Ratios need to be compared over a period of time to identify trends
• Ratios are only as reliable as the information/data used to calculate them
• Ratios relate to the past and not the future
• Levels of customers may vary at the business - there may be busy/quiet periods