The analysis of company performance using different ratio categories : a case study

Abstract

Financial ratio analysis is integral to the assessment and improvement of company performance. The relative usage of financial ratios should be sufficiently general and flexible to accommodate differing user needs. This dissertation embarks on an in-depth analysis of three main categories of ratios, which are the accrual-based ratios, the cash flow ratios and the market-based ratios. The main objective of this study is to analyze the performance of Simonds Parsons Cisk plc for the five-year period from January 2000 to January 2004 as given by the three main categories of ratios. The aim of the analysis is to examine the extent to which the three main categories of ratios give a similar assessment of Simonds Farsons Cisk plc performance. In order to determine whether the three categories generate similar results on the various aspects of the firm activities, desk research was planned and conducted. Research covered not only the theoretical aspect of ratio analysis, but also involved the calculation and comparison of the selected ratios using numerical data extracted from Simonds Farsons Cisk plc annual reports. After defining and analyzing at length the three main categories of ratios, conclusions were drawn as to whether cash flow ratios and market-based ratios impart information not present in the traditional, accrual-based ratios. In fact it resulted that cash flow ratios differ sharply from accrual-based ratios. The concluding chapter, after delving deeper into the five-year trend results, suggests that when taken alone each of the three main categories of ratios generate differing results. However when taken altogether they provide a true and complete picture of Simonds Farsons Cisk plc performance. Users relying on one category and not the other will therefore miss out an important 'piece of the puzzle'.