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RATIO ANALYSIS
Page 2


RATIO ANALYSIS
RATIO ANALYSIS
Ratio analysis is the process of determining and 
interpreting numerical relationship based on 
financial statements. 
It is the technique of interpretation of financial 
statements with the help of accounting ratios 
derived from the balance sheet and profit and loss 
account.
Page 3


RATIO ANALYSIS
RATIO ANALYSIS
Ratio analysis is the process of determining and 
interpreting numerical relationship based on 
financial statements. 
It is the technique of interpretation of financial 
statements with the help of accounting ratios 
derived from the balance sheet and profit and loss 
account.
Classification Of Ratios
•
Analysis of Short Term Financial Position or 
Test of Liquidity.
•
Analysis of Long Term Financial Position or Test 
of Solvency.
•
Activity Ratios.
•
Profitability Ratios.
Page 4


RATIO ANALYSIS
RATIO ANALYSIS
Ratio analysis is the process of determining and 
interpreting numerical relationship based on 
financial statements. 
It is the technique of interpretation of financial 
statements with the help of accounting ratios 
derived from the balance sheet and profit and loss 
account.
Classification Of Ratios
•
Analysis of Short Term Financial Position or 
Test of Liquidity.
•
Analysis of Long Term Financial Position or Test 
of Solvency.
•
Activity Ratios.
•
Profitability Ratios.
I. Test Of Liquidity
•
The liquidity ratios are used to test the short term 
solvency or liquidity position of the business.
•
It enables to know whether short term liabilities can 
be paid out of short term assets.
•
It is a valuable aid to management in checking the 
efficiency with which working capital is being 
employed.
•
It is also of importance to shareholders and long term 
creditors in determining to some extent the prospects 
of dividend and interest payment.
Page 5


RATIO ANALYSIS
RATIO ANALYSIS
Ratio analysis is the process of determining and 
interpreting numerical relationship based on 
financial statements. 
It is the technique of interpretation of financial 
statements with the help of accounting ratios 
derived from the balance sheet and profit and loss 
account.
Classification Of Ratios
•
Analysis of Short Term Financial Position or 
Test of Liquidity.
•
Analysis of Long Term Financial Position or Test 
of Solvency.
•
Activity Ratios.
•
Profitability Ratios.
I. Test Of Liquidity
•
The liquidity ratios are used to test the short term 
solvency or liquidity position of the business.
•
It enables to know whether short term liabilities can 
be paid out of short term assets.
•
It is a valuable aid to management in checking the 
efficiency with which working capital is being 
employed.
•
It is also of importance to shareholders and long term 
creditors in determining to some extent the prospects 
of dividend and interest payment.
Important Ratios In Test Of Liquidity
•
Current ratio.
•
Quick ratio.
•
Absolute liquid ratio.
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