Topic Name

Presented To – Krutika Miss

Name – Aishwarya Sanjay Narkhede
Class- TYBAF
Roll No – 504
Sub- Project Work
 INDEX
Introduction
Uses of Ratio Analysis
Important Factors of Ratio Analysis
Objective of Ratio Analysis
Features of Ratio Analysis
Advantages of Ratio Analysis
Limitations of Ratio Analysis
Classification of Ratio Analysis
Conclusion
Introduction
The ratio analysis in the most powerful tool of financial analysis. Several ratios


calculated from the accounting data can be grouped into various classes according to

financial activity or function to be evaluated.

A ratio is defined as a relationship between two numbers of the same kind



The ratio analysis is one of the most useful and common methods of analyzing


financial statement

Ratio enables the mass of data to summarized and simplified


Meaning
Financial statements give various financial information in
monetary units. The relationship between various items in
financial statements can be expressed by the means of ratios.
This is done with a view to obtain information regarding the
liquidity, profitability, capital structure etc.
Once weakness are identified, the cause responsible for it are
determined with the help of the ratios
Uses of Ratio Analysis
A] Managerial Uses of Ratio Analysis:
1] Helps in decision-making
2] Helps in financial forecasting and planning
3] Helps in communicating
5] Helps in Control
6. Other Uses:
1] Utility to Shareholders/Investors
2]Utility to Creditors
3] Utility to Employees:
Objectives of Ratio Analysis
Simplify accounting information.
Determine liquidity or Short-term solvency and Long-term
solvency. Short-term solvency is the ability of the enterprise to
meet its short-term financial obligations. Whereas, Long-term
solvency is the ability of the enterprise to pay its long-term
liabilities of the business.
Assess the operating efficiency of the business Analyze the
profitability of the business.
Help in comparative analysis, i.e. inter-firm and intra-firm
comparisons.
Feature Of Ratio Analysis
Ratios are designed to show how one number is related to
another. It is worked out by dividing one number by another.
Ratios are customarily presented either in the form of a
coefficient or a percentage or as a proportion.
Ratios provide the means of showing the relationship that
exists between figures. Though there is no special magic in
ratio analysis, many prefer to base conclusions on ratios as
they find them highly useful for making judgments more
easily.
Advantages Of Ratio Analysis:
Useful in judging the operating efficiency of business
Useful for forecasting & budgeting
Useful in inter-firm comparison
Useful in analysis of financial statement
Useful in simplifying accounting figures
Assessing the efficiency of business
Limitations of Ratio Analysis
Lack of true comparison analysis
Difference in accounting methods
Ignores qualitative Factors
Difficult to forecast figure
Ratios may worked out for insignificant and unrelated figures
No standard Ratio
Classification of ratio Analysis
Traditional Classification of Ratios:
1] Balance Sheet or Position Statement ratios
2] Profit and Loss Account or Income Statement ratios
3] Inter Statement Ratios
Functional Classification of Ratio
1]Liquidity Ratios
2] Leverage Ratios
3] Efficiency Ratios:
 Traditional Classification of Ratios

Balance Sheet Ratio Profit and Loss Account
•Current Ratio or Income Statement
•Liquid Ratio Ratios:
•Stock Working Capital •Gross Profit Ratio
Ratio •Expenses Ratio
•Proprietor Ratio •Operating Ratio
•Debt Equity Ratio •Net Profit Ratio
•Capital Gearing Ratio •Net Operating Profit Ratio
•Stock Turnover Ratio
Inter Statement
Ratios:
•Return On Capital
Employed
•Return on Proprietors
fund
•Return On Equity
capital
•Dividend Payout Ratio
•Debt Service Ratio
 Functional Classification of Ratio

Liquidity
Leverage Ratios Efficiency Ratios
Ratios •Gross Profit Ratio
•Current Ratio •Debt Equity Ratio
•Operating Profit Ratio
•Quick Ratio •Debt Ratio
•Net Profit Ratio
•Cash Ratio •Interest Coverage Ratio
•Return On Investment
•Proprietary Ratio
•Earns Per Share
•Capital Gearing Ratio
•Operating Expenses Ratio
CONCLUSION
Ratios make the related information comparable. A single
figure by itself has no meaning but when expressed in terms of
a related figure, it yields significant interferences.
Thus, ratios are relative figures reflecting the
relationship between related variables. Their use as tools of
financial analysis involves as single ratios, like absolute
figures, are not of much use
This project of Ratio analysis in the production concern is
not merely a work of the project. But a brief knowledge and
experience of that how to analyze the financial
performance of the firm.