Understanding the Concepts Assignment Example | Topics and Well Written Essays - 1000 words

Understanding the Concepts - Assignment ExampleUnderstanding the Concepts Quick ratios atomic number 18 the other important ratios for the elegant business, where the current pluss of a business entity, with an exception of the inventories, argon compared to the current liabilities to determine how best the business is dictated in meeting its current cash payment obligations. Profitability ratios are also vital for a tenuous business, since they help the business determine how much profits it has generated within a specified check of business operation (Bangs, 1992). In so doing, the business understands its performance, ranging from the effectiveness of its operations to how well the business is place to compete with other businesses of its nature, serving the same market segment. Through the creation of such insights, developed from the epitome of financial ratios, a business makes suitable, tactical and strategic decisions that help it thrive in the market sequence improv ing on its operations effectiveness customer needs satisfaction and profitability (Horcher, 2005). These ratios compares with those use by self-aggrandising corporations in that, the same ratios are applied by the blown-up corporations for the same reasons, as are for the small businesses. Thus, such ratios are equally important to the managers of large corporations, as they are to the owner managers of small businesses. However, some financial ratios are more appropriate to aid the process of making decisions in large corporations. Such ratios, which are more useful to the managers of large business entities include the debt to asset ratios, which compares the debts that an organization has, to the assets possess by the organization, thus determining how well the organization is placed to meet its debt obligations (Bangs, 1992). Return on asset ratios are the other important ratios for the large corporations. These ratios analyses how the assets of the organization has been gene rating returns. Such ratios, which are more appropriate for the large corporations, differs from those to the highest degree suitable for small businesses in that, the financial ratios for larger organizations mostly deals with the assets and the debts owed by the entity, as most of the large organizations owns many assets as well as debt obligations. This is in contrast to the small businesses, which owns fewer assets, and which are mostly financed from the pockets of the owners, making such ratios not very vital for such businesses (Horcher, 2005). Debt financing is mostly applied by business owners who do not have sufficient finances to establish or to finance the operations of their business, yet they prefer to have total affirm of their business, at the expense of inviting investors into their business, who will care some control. There are various advantages associated with this type of business financing. First, the owner of the business retains the full control of the bus iness, while obtaining the required financing to run the operations of the business (Bangs, 1992). Therefore, the owner of the business reserves the on the whole privilege of making the business decisions to himself. The other advantage associated with debt financing is the fact that the interest paid by the owner of