RATIO ANALYSIS

What Is Ratio Analysis



The establishment of a reasoned relationship of a fixed variable character between measurements of certain phenomenon having some kind of linkage. Ratio shows the arithmetical relationship.

Modes Of Expression
Pure Ratio  Percentage  Number Of Times  Number Of Days/ Week/ Months  Amount In Rupees


Classification Of Ratio
     

Liquidity Ratio Quick or Acid Test Ratio Leverage Ratio Activity Ratio Profitability Ratio Valuation Ratio

Benefits Of Ratio Analysis



Analyzing Financial Statements Judging Efficiency Locating Weakness Formulating Plans Comparing Performance

Limitations Of Ratios

Ratios are tools of quantitative analysis. Ratios are generally distorted by inflation. Ratios give false result, if they are calculated
from incorrect accounting data.

Ratios may be misleading, if they are based on false or window-dressed accounting information.

Conclusion

Ratio analysis is not just comparing different numbers from the balance sheet, income statement, and cash flow statement. It is about comparing the numbers against previous years, other companies, the industry, or even the economy in general values and relating them to how a company has performed in the past, and might perform in the future.