Question

1. "Ratios are indicators - sometimes pointers but not in themselves powerful tools of management" Do you
agree with statement? Give your views in supporting answer in the context of importance of management
accounting​

Answer 1

Explanation:

1. "Ratios are indicators - sometimes pointers but not in themselves powerful tools of management" Do you

agree with statement? Give your views in supporting answer in the context of importance of management

accounting

Answer 2

Ratios are used to derive the relationships between two or more items, by using their relationship we can derive meaningful conclusions, it's used to understand the financial situation of an organization. To derive perfect conclusions and analysis, an analyst needs to take perfect and relatable data.

• Ratios are used to calculate the financial position of an organization.

• To analyze past activities.

• To predict the future or make plans based on these ratios.
• To analyze the capital structure of an organization and budget planning and to know the solvency of an organization.

These ratios are quite helpful and used to date by analysts but not are powerful tools of management because:

• The data can be incorrect then ratios will be derived incorrectly, this will lead to misinterpretation of the situation.
• The data represent the past and also tells about past activities, ratios don't talk about the future.
• To analyze the whole financial situation of a company, we need to calculate no. of ratios.
• To understand and interpret the whole series of ratios we need to have the help of an expert.