Traditional Accounting Ratios are classified on the basis of the origin of the figures used inthe accounting ratios, i.e. on the basis of the Financial Statements from which ratios arederived. The following ratios are usually included in this type of classification.
126.96.36.199 Balance Sheet Ratios or Financial Ratios
Ratios calculated from the different items as appearing in the Balance Sheet of a concernare called Balance Sheet Ratios, e.g. Current Ratio, Liquid Ratio, Proprietary Ratio, Debt-equity Ratio, and so on.
188.8.131.52 Profit & Loss Account Ratios or Operating Ratios
Ratios calculated from the different items as appearing in the Profit & Loss Account of aconcern are called Profit & Loss Account Ratios or operating Ratio, e.g. Gross Profit Ratio,Net Profit Ratio, Operating Ratio.
184.108.40.206 Mixed Ratios or Composite Ratios
Ratios calculated, taking some items as appearing in the Balance Sheet and taking someitems as appearing in Profit & Loss Account are called Mixed Ratios or Composite Ratios, e.g.Return on Net Worth, Return on Investment (ROI), Capital Turnover Ratio, etc.
4.4.2 FUNCTIONAL RATIOS
The other way of classifying the ratios in on the basis of functions they perform, what theyindicate, symptoms or characteristics, namely, liquidity, profitability, financial stability andturnover relationship, etc. This classification assumes greater significance because itdistinctly the different aspects of business performance and helps the various users of Financial Statements to take guard of their interest. For instance, short-term creditors areinterested to evaluate the liquidity position by analyzing the liquidity ratios, while long-termcreditors and investors are interested in the solvency and profitability position of the