Financial Ratios

Financial ratios are the most common tools used for managerial decision-making. They involve the comparison of a variety of figures from financial statements in order to acquire information about a company’s performance. It is their interpretation that makes them a useful tool for the business management. One common usage of financial ratios is making relative performance comparisons. For instance, comparing the firm’s profitability to that of major competitors and observing where the firm’s performance stands versus the industry’ averages enables the users to form judgements on the vital areas such as management effectiveness or profitability.

Internally, the managers use ratio analysis to identify strengths and weaknesses and monitor the performance of the business from which specific objectives, goals and policies it may be formed. Financial ratios are also used to track the performance of an individual firm over time and make comparative judgements regarding its performance. This is done by calculating the firm’s ratios on the per-period basis and tracking the ratio values over time. By doing so, the ratios serve as warnings for troublesome issues, and or benchmarks for measuring performance.

Over recent years, China has had the most expanded economy in the world. China’s business landscape has changed due to the enormous changes in the country in the past decade. As a result, many global investors including the US hope to be part of this rapidly growing market. From a research carried out by the US Government Accountability Office (2005), it is evident that the China’s imports from the US tripled in value from 1995 to the year 2004. However, there has been the crisis over concerns of Chinese piracy on Intellectual property Rights, the vast growing United States trade deficit with China and the terms for China’s admission to WTO and also prison-labor exports. The Chinese piracy of US entertainment software is uncontrollable and is contributing to hefty losses, and this may affect its relation with US.