Ratio AnalysisRatios are a method of summarizing and presenting financial information in an easily understandable form. They are used to help us evaluate a company's performance by identifying relationships between different numbers considered significant. The ratios can be divided into five groups, these five groups are: 1. Cash flow – These ratios measure the company's ability to meet its financial commitments from cash flow.2. Liquidity – These assess the company's ability to meet its current commitments as they come due. Asset Management – ​​These show the velocity of funds throughout the operating cycle of the business and the efficiency with which working capital is managed.4. Participation – These compare the extent to which the company is financed by its shareholders, lenders and creditors and indicate its ability to service external debt. Profitability – These ratios show profit margins, return on capital and equity. Ratio Analysis Cash Flow Cash flow is the lifeblood of any business. Therefore, we begin our structured analysis with cash flow ratios. Debts are considered bank and other borrowings (from the balance sheet under the heading “Creditors: amounts maturing within one year”). Overall cash coverage is a broad measure of the company's ability to meet all of its short-term financial obligations from its base cash flows. The figure for 2004 shows that Allied Waste Disposal plc can meet its short-term debts 2...... middle of paper ...... Ideally this percentage should be similar from year to year other and is comparable to that of other companies in the same sector. industry. It is controlled by the company's pricing policy as well as its overhead control. Net profit for 2004 is 21.34%, meaning Allied WasteDisposal plc makes a net profit of just over 21p for every £1 of sales after overheads. was deducted. This is down from last year, which saw a net profit of 23.99%. This ratio measures the return on all capital employed in relation to total net income before taxes and interest. A company's performance should be judged on the basis of ROCE, as it will not last long, without support, unless this return at least exceeds the cost of borrowing. Return on assets is an overall ratio that measures the return on the total assets used by the business. business