abhishreshthaa
Abhijeet S
RATIO ANALYSIS:
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as its historical performance and current financial condition can be determined.
Meaning and Definition of Ratio:
Ratios make the related information comparable. A single figure by itself has no meaning, but when expressed in terms of a related figure, it yields significant inferences. Thus ratios are relative figures reflecting the relationship between related variables.
Ratio may be defined as “the mathematical expression of the relationship between two accounting figures. But these figures must be related to each other; (i.e. these figures must have a mutual cause and effect relationship) to produce a meaningful and useful ratio.
For e.g. The figure of a turnover cannot be said to be significantly related to the figure if the share premium. It indicates the quantitative relationship which the analyst may use to make the qualitative relationship which the analyst may use to make the qualitative judgment about the various aspects the financial position and performance of the concern.
It may be expressed as percentage or as a rate or as a pure ratio, e.g. if the gross profit on sale of Rs1, 00,000 is Rs 20, 000 then the gross profit on sale is 20% i.e., Rs20, 000*100/1,00,000.
In other example of capital turnover ratio, if sales with a capital employed of Rs20, 000 is Rs1, 00,000, the capital turnover ratio will be expressed as 5 times i.e. Rs1, 00,000/Rs20, 000. In the case of current ratio, if the current assets are Rs1,00,000 and current liabilities are Rs.50,000, current ratio may be expressed as 2:1 i.e. Rs1,00,000:Rs50,000.
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as its historical performance and current financial condition can be determined.
Meaning and Definition of Ratio:
Ratios make the related information comparable. A single figure by itself has no meaning, but when expressed in terms of a related figure, it yields significant inferences. Thus ratios are relative figures reflecting the relationship between related variables.
Ratio may be defined as “the mathematical expression of the relationship between two accounting figures. But these figures must be related to each other; (i.e. these figures must have a mutual cause and effect relationship) to produce a meaningful and useful ratio.
For e.g. The figure of a turnover cannot be said to be significantly related to the figure if the share premium. It indicates the quantitative relationship which the analyst may use to make the qualitative relationship which the analyst may use to make the qualitative judgment about the various aspects the financial position and performance of the concern.
It may be expressed as percentage or as a rate or as a pure ratio, e.g. if the gross profit on sale of Rs1, 00,000 is Rs 20, 000 then the gross profit on sale is 20% i.e., Rs20, 000*100/1,00,000.
In other example of capital turnover ratio, if sales with a capital employed of Rs20, 000 is Rs1, 00,000, the capital turnover ratio will be expressed as 5 times i.e. Rs1, 00,000/Rs20, 000. In the case of current ratio, if the current assets are Rs1,00,000 and current liabilities are Rs.50,000, current ratio may be expressed as 2:1 i.e. Rs1,00,000:Rs50,000.