Ratio Analysis Ratios are a method of summarizing and presenting financial information in an easily understandable form. They are used to help us evaluate the performance of a company by identifying the relationships between different figures considered significant. Reports can be divided into five groups, these five groups are:1. Cash Flow: These ratios measure the company's ability to meet financial obligations through cash flow.2. Liquidity: evaluate the company's ability to meet current liabilities when due.3. Asset Management: Shows the speed of funds through the business operating cycle and how effectively working capital is managed. Equity – Compares the extent to which the company is financed by its shareholders, financiers and creditors and indicates its ability to service external debt. Profitability – These ratios show profit margins, return on capital, and net worth. Cash Flow Ratio Analysis Cash flow is the lifeblood of any business. We therefore begin our structured analysis with cash flow ratios.a) Overall cash cover Notes for overall cash cover: Interest cost is taken as interest received minus interest paid (from the cash flow statement) Dividends are taken as stock dividends paid (from the statement of cash flows) Short-term Debts are considered to be those of the Bank and other loans (from the balance sheet under the heading "Creditors: amounts due 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 core cash flow. 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 and is comparable to other companies in the same industry sector. It is controlled by the company's pricing policy along with overhead control. Net profit for 2004 is 21.34%, meaning that Allied WasteDisposal plc is earning a net profit of just over 21p for every pound of sales before overheads. was deducted. This is a decrease from last year, which showed a net profit of 23.99%. This ratio measures the return on all invested capital relative to all net income before taxes and interest. A company's performance should be judged by ROCE, as it will not last long, without support, unless this return at least exceeds the cost of borrowing. Return on assets is a comprehensive ratio, which measures the return on total assets used by the company. Commercial activity