This classification is based on the purpose for which an analyst computes these ratios. For easy understanding and to achieve the purpose of ratios effectively, ratios may be classified as:- 1. Profitability Ratios 2. Coverage Ratios 3. Turnover Ratios/Activity Ratio 4. Financial Ratios/Liquidity Ratio 5. Leverage Ratios/Long-Term Solvency Ratios. These are discussed one by one below: 1. Profitability Ratios: The [...]
In this article we will discuss about the standard of comparison of ratios and projection of future through ratios. Standard of Comparison: The ratio analysis involves comparison for useful interpretation of the financial statements. Interpretation of financial statements of a firm with the help of ratios becomes significant and meaningful. The ratios should be compared with some standard ratios. When [...]
In this article we will discuss about the classification of combined ratios in accounting. They are:- 1. Activity Ratios or Turnover Ratios 2. Profit Cover Ratios. 1. Activity Ratios or Turnover Ratios: This category of ratios includes those ratios, which highlight upon the activity and operational efficiency of the business concern. The funds of creditors and owners are invested in [...]