• ANALYTICAL REVIEW POPULARLY KNOWN AS

RATIO ANALYSIS IS STUDY OF STATISTICS.

• IT IS CAN BE DONE ONLY WITH THE REFERENCE TO
OTHER VARIABLE WHICH ALREADY EXISTS.
• IT TAKES A VARIOUS BASES FOR COMPARISON.
 DEFINATION
Analytical review is the study of significant
ratios, trends and statistics.
ratio analysis is the systematic use of ratios
for interpretation of financial statements in
regard to operating results and financial
position of a business.
 VARIOUS BASES
• TREND ANALYSIS
• INTER FIRM COMPARISON
• INDUSTRY ANALYSIS
• STANDARD ANALYSIS
• GROUP ANALYSIS
 TREND ANALYSIS
This analysis is made on the basis of
performance of the past years compared
with performance of current year. This
exactly shows in which direction the
performance of the organization is going. It
deflects with the change in ratio in
preceding years.
INTER FIRM COMPARISON
This comparison is made on the basis of
ratio between two or more firms carrying on
the same business. It shows the financial
position & performance of business of a
individual firm. This type of comparison is
generally seen in the competitive market.
Only same type of business can be
compared.
 INDUSTRY ANALYSIS
In this type of analysis ratios of a firm with the
relating industry is being made. This gives
the personal standing of a firm in an
organization. This analysis is generally
made by outsiders to know the efficiency of
a individual firm with the industry. Such a
firm gets a better scope in the industry.
STANDARD ANALYSIS
In this type of analysis there is a standard
already set by the firm itself. This kind of
analysis is effective in the case of a going
concern business. It may not hold good with
a new comer of the market. This may also
lay down the enthusiasm of new comers of
the market.
 GROUP ANALYSIS
This type of analysis is different from
other analysis we have studied earlier.
Here a group of ratios is studied
together to form an opinion regarding
a particular activity like profit,
solvency, etc.
 SIGNIFICANCE

It is the significant tool of financial analysis.

This makes the user to draw a relevant
information from the comparisons. This kind
of analysis gives a consumer (particularly
share holders) a great deal of work done for
them in guiding them to invest their money.
As a financial tool it provides financial
analysis using various methods.
 FINANCIAL ANALYSIS
METHODS
 SHORT TERM SOLVENCY ANALYSIS
 LONG TERM SOLVENCY ANALYSIS
 OPERATING EFFICIENCY AND
PERFORMANCE
 TREND INFORMATION
 INTER FIRM COMPARISON
SHORT TERM ANALYSIS
This type of analysis shows the liquidity of a
firm. If a firm has capacity to meet short
term solvency then it is considered that it's
liquid position is satisfactory. This kind of
ratios are generally used by bankers,
creditors, suppliers, investors (for a public
ltd. Co.)
LONG TERM ANALYSIS
This kind of ratios are calculated for long term
basis i.e.5 yrs or more. This kind of ratios
are generally taken by long term creditors,
securities, etc. Even the owners of the firm
are interested with such ratios by which they
can expand or get sufficient loans from debt
market.
OPERATING EFFICIENCY
This kind of ratios are calculated to know the
consistent performance of firm. Most of the
interested people in this ratios are the
experts of firm, investors of firm, outsiders,
etc. This shows the proper utilisation of
assets of business. Even management is
interested in such ratios to attract more
number of people.
 TREND INFORMATION
Ratio analysis helps the users to know the
trend information which is either favorable or
not. This reveals the financial position of the
firm. Thus many of the users and new
comers can get the required information.
It also helps the management to take decision
whether to continue with the business or
not.
 INTER FIRM
COMPARISON
This ratios are calculated for interpretation of
working efficiency of each firm. It not only
provides the position of the firm but also
provides position of competitors. This also
provides the firm an idea to take various
steps to overcome it’s difficulties over other
competitors.
 LIMITATIONS
1. when ratios are compared with standard it
gives meaningful information. But it is
difficult to set standard for ratios.
2. different accounting periods of each firm
could also be a major problem in finding
ratio analysis
3. In industry analysis it is difficult to find the
average of such a big country.
4. Ratio analysis also depends on the accounting
methods used by the various firms in the
industry.
5. Ratio analysis is not made on taking
considerations like inflation, price level
changes, deflation, etc.
6. Ratios of preceding years cannot predict the
work of firm in current or coming years.
7. Ratio without preceding years ratio is of no
use.
 USES TO AUDITING
As a Auditor it is important for him to get a ratio
analysis to suggest his client to whether to
continue with business or not. As a Auditor it is
also important for him to check returns on
investment, net profit, stocks, debtors, fixed
assets, creditors, debt-equity, etc.
Auditor calculates this ratios to find the firm’s
position as per the balance sheet.