Financial Statement and Operating Indicator Analysis Essay

Financial Statement and Operating Indicator Analysis - Essay Example The current ratio is a liquidity ratio and indicates the extent to which an organization can cover its short term liabilities by its liquid assets. It is calculated by dividing the total current assets in the organization with the total current liabilities.This ratio seeks to examine the revenue of the organization as a function of its expenses. It includes the revenues of the organization from all sources in its calculation. The ratio is usually derived by dividing the net income of the organization with the total revenue. A high ratio means that the organization can cater for its costs efficiently, and indicates profitability. On the other hand, a lower ratio indicates that an organization could be experiencing financial difficulties, and may not have the ability to give viable returns to investors (Chandra, 2010).A major challenge concerned with financial statement analysis relates to the inability of the statements to recognize the seasonal qualitative changes, which occur in the course of normal business. These changes include changes in management, government policies, as well as labor strikes. Such changes affect the financial position of the business, thus including them in the financial analysis is significant. Therefore, users of analysis should require financial analysts to assess the implications of such factors on the organization’s profitability, and report to them (â€Å"Foundation of the American College of Healthcare Executives†, 2008).