Received: 2018-11-15  |  Accepted: 2019-02-20  |  Published: 2019-03-30

Title

The classification and comparison of business ratios analysis methods


Abstract

There are many business ratios analysis methods, which are used for different purposes, and the task of these methods classification remains actual business administration problem at present time. In this paper, we suggest two-dimensional classification for business ratios analysis methods. The first dimension is related to the goal of analysis – who and what for performs the business ratios analysis. Usually different real or possible participants of business process perform business ratios analysis for decision-making. There are four main real participants of the business process – owners, workers, managers, society, and two potential participants – creditors and investors. Interests of all participants of the business process are different and therefore the purposes of business ratios analysis can be different. The difference in purposes entails the difference of methods of business ratios analysis, but the common question for all participants of business processes is the question about how their interests are satisfied. The second suggested dimension for business ratios analysis methods classification is the depth of analysis and four levels of analysis are suggested here. The first level is the level of operations and such ratios as earnings (EBITDA, EBIT, EBT, EAT, RE), returns (ROI, ROA, ROE), assets (FA, CA, OF, LTL, CL, TA) are considered at this level. The second level is the financial leverage level and such ratios as Debt/Equity, Interest, Tax, ROE are considered at this level. The third level is the stock market level and such ratios as NPV, EVA, NOPAT, WACC are considered here. The fourth level of business ratios analysis is the functional level or the level of structural units. Independently on the interests of participants of business process, a company should perform such business functions as the creation of organizational structure, financial, human and material resources management, main business activity organization, marketing and others. Usually, special structural units are created in the company to perform most significant business functions, and the quantitative evaluation of business functions performance needs to consider business ratios, which describing appropriate units. Therefore, there are many business ratios analysis methods. The classification and comparison of them give the possibility to take into account, compare the interests of all participants of the business process, and find more qualitative business solutions. Paper considers the classification of business ratios analysis methods and compares them to work out recommendations to balance the interests of different business process participants.


Keywords

business ratios, participants of the business process, company efficiency


JEL classifications

G11 , M21


URI

http://jssidoi.org/ird/article/5


DOI


HAL


Pages

48-57


Funding

The paper was supported by the project "The Development of Innovation and Entrepreneurship in Latvia in Compliance with the Smart Specialization Strategy" within the National Research Program 5.2. "Economic Transformation, Smart Growth, Governance and Legal Framework for the State and Society for Sustainable Development - a New Approach to the Creation of a Sustainable Learning Community (EKOSOC-LV)".

This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Hilkevics, Sergejs
Ventspils University College, Ventspils, Latvia https://venta.lv
Articles by this author in: CrossRef |  Google Scholar

Semakina, Valentina
Ventspils University College, Ventspils, Latvia https://venta.lv
Articles by this author in: CrossRef |  Google Scholar

Journal title

Insights into Regional Development

Volume

1


Number

1


Issue date

March 2019


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 2131  |  PDF downloads: 1050

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