what is pyramid ratio?explain in detail
Answers
Answer:
Elements of The pyramid of ratios:
Left side ~ External rate of returns
Right side ~ Internal managerial performance
Bottom ~ Sales Ratios
PRINCIPLE:
Illustrate the relation and calculation principles of Key Ratios
ISSUES:
Short term’s (short term optimization vs long term strategy)
Past orientation (future change influence)
Measurement problems (accounting standards, policies and creativity)
Strategies are often assessed on achieving a specific profit level or growth, RONA, ROE or Value however – Specific ratios are reliant of accounting convention and policies
APPLICATIONS:
To make meaning compare to – historical trend, competitors, industry or country average
Used to make comprehensive appraisal of corporate and managerial levels
Used by management focusing on profit generated from assets within its control.
Used to trace down the reasons for profitability level