Risks Associated with Sponsorship from Sponsored Entity’s Perspective
In the previous article, we have already seen that sponsorship is not really a risk-free activity. We became aware of the various types of risks which are faced by sponsors when they provide monetary assistance to sporting leagues. However, it is important to realize that the risks are not one-sided. Just like, sponsors are exposed […]
How Reverse Pitching Works? – Its Advantages & Disadvantages
Start-ups connect with large corporations in many ways. The most common way for start-ups to connect with their larger counterparts is when they try to raise funds from these companies. It is common for start-up companies to approach bigger firms in order to pitch their business. However, a lot has changed in the start-up community […]
Capital Rationing and Profitability Index
In the previous few articles we have come across different metrics that can be used to choose amongst competing projects. These metrics help the company identify the project that will add maximum value and helps make informed decisions to maximize the wealth of the firm. We saw how the NPV rule was better than IRR […]
The Financial Independence Retire Early (FIRE) Movement
In the previous article, we learned about financial freedom or financial independence. However, in the traditional financial planning world, financial freedom was only considered to be a goal that is to be reached towards the end of one’s career. The general opinion was that financial freedom has to be reached when a person has attained […]
Commercial Banks and Branch Banking
The business model behind commercial banking practice has completely changed over the years. Earlier, commercial banks were heavily dependent upon branch banking. Branches that served corporate customers were thought of as being an asset. As a result, it was common for corporate banks to advertise these branches to prospective clients. However, over the years, the […]
Ratio, as the name suggests, is nothing more than one number divided by the other. However, they become useful when they are put in some sort of context. This means that when an analysts looks at the number resulting out of a ratio calculation he/she must have a reasonable basis to compare it with. Only when the analyst looks at the number and compares it what the ideal state of affairs should be like, do the numbers become powerful tool of management and financial analysis.
Dividing numbers and obtaining ratios is therefore not the main skill. In fact this part can be automated and done by the computer. Companies wouldn’t want to pay analysts for doing simple division, would they?. The real skill lies in being able to interpret these numbers. Here are some common techniques used in the interpretation of these numbers.
Horizontal analysis is an industry jargon for comparison of the same ratio over time. Once a ratio is calculated, it is compared with what the value was in the previous quarter, the previous years, or many years in case the analyst is trying to make a trend. This provides more information of two grounds. They are:
Cross sectional ratio analysis is the industry jargon used to denote comparison of ratios with other companies. The other companies may or may not belong to the same industry. Cross sectional analysis helps an analyst understand how well a company is performing relative to its peers. In a way this removes the effect of business cycles. There are many variations of cross sectional analysis. They are as follows:
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