Introduction:
This module is a continuation from the previous module. It covers the remaining ratio analysis excluding profitability. It includes efficiency analysis, liquidity analysis, capital structure analysis and market performance analysis. Asset efficiency refers to the effectiveness of an entity’s investment in assets to generate income. Liquidity refers to the ability of an entity to meet its short-term commitments. To be viable in the long term, an entity must be able to satisfy its long-term commitments and be assessed through solvency ratios. Market performance ratios are relevant only for entities listed on organised securities exchanges, as they relate reported numbers to the number of shares on issue or the market price of the share. Calculating a ratio and ascertaining how it varies (compared with previous years or other entities) raises the question of why the variation occurs. Ratio analysis provides valuable insights into the financial position and performance of an entity, but the process has its limitations.