Effectiveness of Ratio Analysis in Business Decision Making Process
Background of study
An organization uses different tactics in collection of wide range of information about financial position through a variety of accounting statements. In this context, ratio analysis is considered as a most important tool which is used to evaluate business position of an organization (Altman, 2012). The present investigation will be carried out to assess effectiveness of Ratio Analysis in business decision making process by considering the business operations of WM Morrison. By using present investigation, organization will be able to evaluate importance of ratios in evaluation of business performance while taking different business decisions according to current market trends. This research will assist management of WM Morrison in application of ratio ratio analysis while taking different business such as business expansion by conducting systematic evaluation of profitability, assessment of liquidity etc.
The study of Porter and Norton (2009) has addressed that ratio analysis helps management in evaluation of a range of accounting statements with in a simplified manner. It provides information associated with liquidity, profitability and position of business. By comparing the ratios with the ratios of previous years and other firms, business entity is able to assess growth in financial performance as well as position of company towards other organizations. Outcomes of ratio analysis have played vital role in business decision of organization. Drake and Fabozzi (2012) have examined that an organization has to consider several elements while taking different business decisions. It includes market position of firm, industry trends, competition, financial position and profitability. All these elements are creating huge impact on business decisions associated with business expansion, new product development, merger and acquisitions, financing etc. The research of Burstein, Brézillon and Zaslavsky (2010) has determined that top managers in an organization apply ratio analysis to assess information associated with liquidity, profitability, capital and proficiency from different accounting statements such as income statements, balance sheet etc. that provides assistance in a range of business decisions and strategic planning.
The aim of present study is to assess the Effectiveness of Ratio Analysis in business decision making process: Study on WM Morrison.
Research goals that will be followed by researcher is mentioned below:
- To assess the importance ratio analysis in simplification of financial data
- To evaluate different aspects of business decision making process in WM Morrison
- To examine the application of ratio analysis in decision marking process of WM Morrison
- To suggest important tactics to increase effectiveness of ratio analysis
Researcher questions will provide assistance to researcher in handling of different research activities along with collection a range of data with an appropriate manner with reference aim and objectives of investigation. The research questions for present study are explained below:
- Does ratio analysis play important role in simplification of financial data?
- What are different elements of required to consider in business decision making process in WM Morrison?
- How ratio analysis is useful in decision marking process with in an organization?
By focusing aim and objectives of investigation, researcher will apply quantitative method of investigation in which researcher will be able to analysis a variety of information and statistics and facts (Creswell, 2013). In this process, investigator will consider both sources of data collection primary and secondary. Primary data will be acquired by taking views of different managers of WM Morrison about ratio analysis through questionnaire. Therefore, random sampling approach will select to take appropriate sample. In addition to that research will also acquire a range of data from secondary sources such as books, journals, online blogs as well as annual reports of WM Morrison (Daniel and Sam, 2011). Statistical analysis will be used by investigator to evaluate views of managers along with application ratio analysis in evaluation financial performance. By using statistical analysis, researcher will be able to present the views of managers about role and importance of ratio analysis while taking different strategic decisions through different tables and graphs. It will assist researcher in calculation of different ratios of WM Morrison and evaluate their applicability in various business decision.
- Altman, E., 2012. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance.
- Drake, P. P. and Fabozzi, J. F., 2012. Analysis of Financial Statements.
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- Porter, G. A. and Norton, C. L., 2009. Financial Accounting: The Impact on Decision Makers. 6th ed. Cengage Learning
- Burstein, F., Brézillon, P. and Zaslavsky, A., 2010. Supporting Real Time Decision-Making: The Role of Context in Decision Support on the Move. Springer Science & Business Media.
- Creswell, J. W., 2013. Qualitative, Quantitative, and Mixed Methods Approaches. 4th ed. SAGE Publications, Inc.
- Daniel, S. P. and Sam, G. A., 2011. Research Methodology. Gyan Publishing House.