1. Discuss the importance of the calculation and interpretation of ratios, to complete an effective financial ratio analysis.
Ratios involve comparison of commodities in terms of numbers to another in order to establish a vital truth about their relationship and if possible take an informed decision or action. Ratios in finance are utilized by managers as decision making (David, 2008). They extract information from diverse financial records which cannot be obtained from mere observation without calculation and interpretation. Mainly ratios perform the role of indicators where it illustrates which direction the firm is heading especially on financial issues (David, 2008). Ratios are applied in financial analysis to determine the company’s performance in a given a period or evaluation of its records in comparison to a given time. These tasks aid the firm establish its strengths, and weakness which have to be managed adequately so that they do not be a disadvantage to the firm’s operations or performance (David, 2008).
Through calculation and interpretation of financial records, it assists in evaluation of a firm’s performance within a given duration and aids in tracking values. This is establishment of financial trend of a firm, which will assist in coming periods since it will act as a base of operation. It warns the firm managers of critical/scarcity or plenty periods where the necessary actions are taken in time (David, 2008). Calculation and interpretation is utilizes comparisons of firm’s performance at the same time of with different times of the year. In addition, the firm compares its operation with the external markets especially the regionally which adversely alters its performance. This ensures that it does not operate on loss or use outdated methods, which could lead to its closure (David, 2008).
2. Discuss your opinion of US businesses being interested in doing business with China. What are your main concerns?
China’s economy has been growing for the past two decades, which has made numerous states wanting to invest and establish their endeavors in china. This comprises the economic giant US that has developed unequaled interests aimed at investing in China (David, 2008). For the past twenty years, economic growth has recorded an augmentation of 9.5% thus indicating sure returns for each endeavor established in china. Since the economy is developing at a high pace coupled with its industrial prowess where it is predicted that besides being the second globally in economic, it may exceed and win over the US in the near, coming years (David, 2008). China’s economy is transforming from agriculture-based to urban which has led to fueling of increased efforts to industrialize. This has yielded to the intense industrialization which is a goal of each developing state to dominate the world economy (David, 2008).
My main concern is for the foreign states US inclusive that are intending to invest or establish firms in china. Initially, the firms need to have fore knowledge on how to manage cultural hurdles, which they have to jump prior establishing themselves adequately. China operates differently from other states where each state it has to succeed has been prepared to know, and understand cultural ethics of china which have extended in investments. For instance, in striking a deal in any other state is an instant action but in china, this calls for a lot of patience. Additionally, having a human resource in china the firm has to take quite a long time for the firm has to operate from the region instead from outside.
The incoming nations besides being attracted by a growing economy, they may be a threat to china’s future advancement where they will almost dominate the economy to their disadvantage. This will yield to exploitation of their population where many foreign states, for example, US is using the Chinese who have trained in their states as managers in their firms where they have full power on how it will be run. The investing may spend much prior to establishing themselves in china has to have full knowledge of china, thus using resources which is not guaranteed it will return upon operations.
Reference
David, R. F. (2008). Strategic Management: Concepts. United States of America. Pearson Education.
