abhishreshthaa
Abhijeet S
NATURE OF’ RATIO ANALYSIS
Though ratio analysis is ‘all the rage’ among the users of accounting information, it is better to understand the nature of ratios so that they can be employed judiciously under appropriate conditions.
The relation between two or more financial data brought out by an accounting ratio is not an end in itself. They are means to get to know the financial position of an organisation.
An Individual ratio may not be capable of providing the answers required for the various problems facing an executive.
Industrial ratios may provide valuable information only when they are studied and compared with several other related ratios.
Ratio analysis will tend to be more meaningful when certain standards and norms are laid down so that what the ratios indicate can be compared with the said standards. This provides a base for decision-making and assists in taking measures to rectify any drawback or deficiency.
Though ratio analysis is ‘all the rage’ among the users of accounting information, it is better to understand the nature of ratios so that they can be employed judiciously under appropriate conditions.
The relation between two or more financial data brought out by an accounting ratio is not an end in itself. They are means to get to know the financial position of an organisation.
An Individual ratio may not be capable of providing the answers required for the various problems facing an executive.
Industrial ratios may provide valuable information only when they are studied and compared with several other related ratios.
Ratio analysis will tend to be more meaningful when certain standards and norms are laid down so that what the ratios indicate can be compared with the said standards. This provides a base for decision-making and assists in taking measures to rectify any drawback or deficiency.