abhishreshthaa
Abhijeet S
COMPILATION OF RATIOS
Ratio analysis is rightly considered as an invaluable tool of analysis. However, one has to exercise considerable degree of caution while analysing the financial statements with the aid of ratios. The precautions one has to take in ratio analysis are listed below:
It is essential to ensure that the persons who use the ratios understand the terminology and the component figures employed for compiling.
Secondly, the ratios to be compared should be capable of being compared validly. In other words, the data found in financial statements have to be horizontally consistent over a period of time.
Thirdly, compilation of ratios has to be done speedily. They have to be worked out and suppiled to the different users in time for further action.
Fourthly, ratios have to be presented in an appropriate manner. It is a usual practice to set out the major ratios first followed by less important ratios and then finish with the least important ones.
Fifthly, a complete record of ratios is essential.
Ratio analysis is rightly considered as an invaluable tool of analysis. However, one has to exercise considerable degree of caution while analysing the financial statements with the aid of ratios. The precautions one has to take in ratio analysis are listed below:
It is essential to ensure that the persons who use the ratios understand the terminology and the component figures employed for compiling.
Secondly, the ratios to be compared should be capable of being compared validly. In other words, the data found in financial statements have to be horizontally consistent over a period of time.
Thirdly, compilation of ratios has to be done speedily. They have to be worked out and suppiled to the different users in time for further action.
Fourthly, ratios have to be presented in an appropriate manner. It is a usual practice to set out the major ratios first followed by less important ratios and then finish with the least important ones.
Fifthly, a complete record of ratios is essential.