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CFO Services – Decision Making Using the Financial Ratios

Ratio analysis involves the comparison of two numerical values in the financial statements including; Balance Sheet, Income Statement, and Cash Flow Statement, of the company. The purpose of ratio analysis is to utilize the results of operations declared by the company for decision making purposes. These accounting ratios can provide meaningful information about the areas that have shown satisfactory or unsatisfactory performance. Financial ratios also represent the highlights of the financial performance of the company. With these ratios virtual CFO can help small and medium sized enterprises identify the weaknesses and strengths inherent in their operations.
The preparation of financial statements of any business organization is a timely process undertaken by qualified specialist accountants. There is a lot of information about the company in its annual financial report, even more than any layman can imagine. However, its interpretation requires the work of qualified accountant or auditors as well. Anyone can tell you whether the company has made a profit or loss during the period by looking at the Income Statement of the company, but the reasons of profit or loss and the rooms for improvement in operations are only known by thorough analysis of the figures and in-depth comparison of the line items. That is exactly what virtual CFO excels at.
Businesses with sizable and limited budgets can benefit alike from the virtual CFO services, as these are undertaken by highly qualified virtual CFO professionals and are usually more economic than hiring a permanent employee of the company. Financial ratios include many types of comparisons under the following major categories:
1. Liquidity ratios – Gives indications about the ability of business to discharge its short term financial obligations.
2. Profitability ratios – Provides information relating to profit embedded in each dollar of sale, gross profit and operating profit.
3. Activity ratios – Evaluates how much time is taken to sell inventory, receive money from debtors, and pay creditors. Also indicates the effectiveness of the utilization of company’s economic resources.
4. Leverage or Gearing ratios – Debt-Equity ratio, Gearing and Leverage ratios are the popular measures of company’s long term financial obligations and its ability to meet those obligations.
5. Shareholder ratios – These ratios provide valuable information to the shareholders, e.g., Earnings per Share, Dividend per Share, Dividend Payout and yield ratios.
6. Return on Investment – For example, return on assets and capital employed.
Virtual CFO services would help you in reviewing the performance of your business, comparing your operational results with other companies in the same industry and your rival companies, and will enable you to employ the corrective measures to timely solve the prevailing financial crisis and other issues.