Tag Archives | Ratio Analysis

Ratio Analysis: Steps and Nature | Accounting

In this article we will discuss about:- 1. Introduction to Ratio Analysis 2. Steps in Ratio Analysis 3. Nature. Introduction to Ratio Analysis: The company’s financial information is contained in Balance Sheet and Profit and Loss Account. The figures contained in these statements are absolute and sometimes unconnected with one another. An absolute figure does […]

Users of Ratio Analysis | Accounting

In this article we will discuss about the users of ratio analysis in accounting. Ratio analysis of a firm’s financial statements is of interest to a number of parties, mainly, share-holders, creditors, debtors, firm’s own management etc. People in various walks of life are at present interested in ratio analysis though in different ways and […]

Ratio Analysis: Problems and Solutions | Accounting

Here is a compilation of top thirteen accounting problems on ratio analysis with its relevant solutions. Problem 1: The following is the Balance Sheet of a company as on 31st March: Problem 2: From the following particulars found in the Trading, Profit and Loss Account of A Company Ltd., work out the operation ratio of […]

Importance of Ratio Analysis | Accounting

The importance of ratio analysis are:-  1. Aid to Measure General Efficiency 2. Aid to Measure Financial Solvency  4. Facilitate Decision-Making 5. Aid in Corrective Action 6. Aid in Intra Firm Comparison 7. Act as a Good Communication 8. Evaluation of Efficiency 9. Effective Tool 10. Detection of Unfavourable Factors.   1. Aid to Measure General […]

Limitations of Ratio Analysis | Accounting

Some of the limitations of the ratio analysis are:- 1. Differences in Definitions 2. Limitations of Accounting Records 3. Lack of Proper Standards 4. No Allowances for Price Level Changes 5. Changes in Accounting Procedure 6. Qualitative Factors are Ignored 7. Limited Use of Single Ratio 8. Background is Overlooked 9. Limited Use 10. Personal […]

Top 6 Categories of Ratio Analysis | Firm

The following points highlight the top six categories of ratio analysis. The categories are: 1. Liquidity Ratios 2. Leverage Ratios 3. Asset Management Ratios 4. Profitability Ratios 5. Operating Ratios 6. Market Based Ratios. Category # 1. Liquidity Ratios: The liquidity ratios measure the liquidity of the firm and its ability to meet its maturing […]

Top 6 Advantages of Ratio Analysis

The following points highlight the top six advantages of ratio analysis. The advantages are: 1. Useful in Financial Position Analysis 2. Useful in Simplifying Accounting Figures 3. Useful in Assessing the Operational Efficiency 4. Useful in Forecasting Purposes 5. Useful in Locating the Weak Spots of the Business 6. Useful in Comparison of Performance. Advantages […]

9 Major Limitations of Ratio Analysis

The following points highlight the nine major limitations of ratio analysis. The limitations are: 1. False Results if Based on Incorrect Accounting Data 2. No Idea of Probable Happenings in Future 3. Variation in Accounting Methods 4. Price Level Changes 5. Only One Method of Analysis 6. No Common Standards 7. Different Meanings Assigned to […]

5 Main Types of Ratio Analysis

The following points highlight the five main types of ratio analysis. The types are: 1. Profitability Ratios 2. Coverage Ratios 3. Turnover Ratios 4. Financial Ratios 5. Control Ratios. Ratio Analysis: Type # 1. Profitability Ratios: Profitability ratios are of utmost importance for a concern. These ratios are calculated to enlighten the end results of […]

Ratio Analysis: Definition and Limitations | Cost Accountancy

In this article we will discuss about Ratio Analysis:- 1. Definition of Ratio Analysis 2. Limitations of Ratio Analysis. Definition of Ratio Analysis: Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions and as the relationship between two or mm thing?” — Webster’s […]

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