In the case of A.B. Foods it is a big corporation with three big divisions, for instance its retail division is lagging behind and needs their urgent attention but instead of having profitability ratios per division the management is given the whole financial report, then it will take time for them to conclude that retail division which needs the most attention. This could cost the company dearly.
Another example from the above study could be that sometimes data is incomplete and does not present clear picture. For instance, A.B. Foods profits have increased from £ 569 million in ’10 to £ 634 million in’13, but when we look at the profit margins it has significantly dropped from 5.6% to 4.76%. Thus, if we were looking at absolute numbers there has been significant growth but when we glance deeper we see that the margins have dropped.
Also, financial reports only show the performance of the company but does not show how does the company fair against its competitors, which could be misleading and myopic. As a company is part of the society and in this overly competitive times we need to be aware how are our competition is fairing. A.B. Foods needs to weary of competition from Nestle and monitor its performance and constantly try to outdo them, because complacency could be devastating.
Thus, managers and decision makers require a little more than just figures they require critical analysis of the said numbers with reference to the past data as well as with the current competition and potential competitors. So, the top brass require tools such as Ratio Analysis to support them in making quick and critical decisions which could be vital for the company.