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Dear all
I currently meet trouble with the exercise of Interpretation of accounting ratio. I calculated vital ratios but I do not know how I should write comments about those ratios.
Please help me, give me some advices or instructions and what was examiner concentrate on in our exam??
In general terms you need to make comparisons of the ratios with the ratios of similar companies or the industry average for the given ratios in question.You also need to compare with historical performance of the ratio for the given organization in question.For instance if the gross profit margin increases from twenty per cent to thirty per cent in a year this could be stated as a fifty percent increase in margin of profitability of the ratio.If this process is carried out with industry average or a competitors gross profit margin it enables comparisons to be made more easily and relevant arguments about relative performance of organisation to be made.
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