Page 1 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.Read More

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