The ratio analysis of black sea somewhat gives a precise account of the financial position and performance of BlackSea. The different ratios look at different aspects of the business. Moreover, two years ratios were compared and analyzed above. This means that stock holders as well as the directors have a better understanding of the performance and progress of the business compared to the industry’s and its previous year’s performance.
We can see that the operating profit margin and the gross profit margin decreased even though the company increased its net income by 47m dollars. Therefore it is advised to look at the whole scenario and all data rather than the ratios alone. BlackSea’s performance can be matched with the industry’s performance and thus an approximate prediction can be made.
The managers can make ample use of the ratio analysis. For example BlackSea’s managers can see that the liquidity of the business increased by looking at the liquidity ratios and thus they would not want to take short term or long term loans.
Other aspects should also be kept into mind. The ratio analysis only shows the financial aspects of a business. It does not show other aspects like heavy amounts spent in research and development of technology.
The balance sheet dates are also important. BlackSea’s balance sheets may be made on different dates than the dates of other companies. Therefore, the market situation at different times of the year may vary which may influence the ratio analysis of BlacSea.
We are not sure whether the other companies use the same procedure and methods as BlackSea for example depreciation policies, perpetual inventory system etc. These aspects can also greatly affect the credibility of ratio analysis for BlackSea.
Other aspects like customer and labor satisfaction, quality of product and market share are also ignored when we only consider the ratio analysis.
BlackSea’s weaknesses can also be located if we look carefully. For example we can straight away see from the operating profit and gross profit ratios that the profitability decreased. If we had not taken into consideration the ratios then apparently the sales and profits increased and we would have mistaken the business to be prospering.
The business prospered but not as much as it did in 2009. The profitability ratios indicate that the company’s profitability decreased. The gross profit margin and the operating profit both decreased and they were lesser than that of the industry’s.