Tag Archives | Accounting Ratios

Accounting Ratios: Importance and Limitations

Accounting Ratios: Importance and Limitations! Importance of Accounting Ratios: The importance of accounting ratios, that is, relationships worked out among various accounting data which are mutually interdependent and which influence each other in a significant manner, arises from the fact that often absolute figures standing alone convey no meaning. They become significant only when considered […]

4 Main Types of Accounting Ratios

The following points highlight the four main types of accounting ratios. The types are: 1. Return on Investment 2. Profitability Ratios 3. Return on Proprietors’ Funds 4. Return on Equity Capital. Accounting Ratios: Type # 1. Return on Investment: Profitability or the Return on Investment is the basic casual ratio. It is ascertained by a […]

Predictability of Insolvency on the basis of Ratios

In this article we will discuss about the Predictability of Insolvency on the basis of Ratios. Edward 1. Altman of U.S.A. has developed a model on the basis of which insolvency of a firm can be predicted— this has been developed on the basis of empirical research conducted by him. In Altman’s view, the Z’ […]

Turnover Ratios (With Formulas)

Performance or activity ratios judge how well the facilities at the disposal of the concern are being used. The ratios are usually calculated on the basis of cost of sales. The ratios are also known as turnover ratios as they express the rapidity with which a unit of capital invested in fixed assets, stock, etc. […]

5 Major Limitations of Accounting Ratios

The following points highlight the five major limitations of financial ratios. 1. Accounting ratios are based on accounting figures given in the financial statements. However, accounting figures are themselves subject to deficiencies, approximations, diversity in practice or even manipulation to some extent. Therefore, ratios are not very helpful in drawing reliable conclusions. 2. Accounting ratios […]

Accounting Ratios: Uses and Types (With Calculations)

In this article we will discuss about Accounting Ratios:- 1. Uses of Accounting Ratios 2. Types of Accounting Ratios. Uses of Accounting Ratios: Some of the possible uses of accounting ratios are summarized below: 1. Accounting ratios may be very useful for forecasting likely events in the future since past ratios indicate trends in costs, […]

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