Summary: Accounting Ratios Video Lecture | Accountancy Class 12 - Commerce

hello everyone and welcome back to
steady tube in this video we are going
to discuss about what is the meaning of
ratio why we are going and why we need
to understand the term accounting ratios
and different type of ratios and what
are the different types of you need to
understand so let's take first
understand the meaning of ratio ratio
can be defined as the relationship now
relationship between 1 and 2 earth
matically variables or it can be defined
as the value of one variable in terms of
other variable but what we need to
understand this ratio in accountancy
suppose there are two companies and in a
majeure of company ABC calls a profit of
1 lakh and the manager of other company
XYZ calls a profit of 1 lakh 50 thousand
now looking at this situation I might
think that X Y Zed is comparatively
better as compared to ABC because its
profit is higher but I cannot ignore
other factors I cannot ignore the
capital investment I cannot ignore the
Depp structure I cannot ignore the
creditors in details payment so there
are various other factors also which
help us in comparing two firms so the
profit cannot be the sole discretion in
comparing two firms now why we need to
understand the ratio so the first is the
analysis of financial statement now what
it means analysis of financial statement
it tells us it helps the bankers it
helps the creditors it helps the deters
the shareholders in getting the
knowledge about the profitability as
well as the financial strength health of
the business the second is the
simplification and easy to understand
form now accounting ratios are basically
expressed in the terms of one variable
in the terms of other variable so this
simplifies all this summarizes
is a long accounting data or a large
accounting data into simple tiles or
percentage form and which helps us in
evaluating the cause and effect
relationship the other is the
comparative study now this is one of the
main advantage of understanding the
ratios it helps us in comparing the
profitability the financial position are
acids are ratios the current clear
figures with the previous year figures
are comparing these data our financial
strain the profitability with other
forms also now the other is ideal ratio
versus actual ratio this helps us in
finding the variance by comparing the
standard and the actual ratio the other
comes the trend which helps us in
evaluating the company's past
performance planning and forecasting
because we can save standards we can do
planning and it also helps in low false
identification now loophole
identification as different ratios tells
us about different financial ability or
financial health of a company so the
helps in identifying that particular
loophole which is not performing good so
these were some of the advantages of
ratios now let's understand the
different types of ratios so first here
you can see the picture of water that is
in liquidity ratio the S stands for
solvency ratio the man doing the
activity of running is telling about the
activity ratio and the last one is the
profitability ratio so let's first
discuss what is liquidity ratio and how
it is beneficial and what are its
advantages
so liquidity ratio till surst it how
easily an asset can be converted into
cash with no loss that is how acid can
be converted into cash within a short
period of time so it tells us about the
short-term financial
position that is the company's ability
to meet short-term liabilities that is
the current liabilities of the company
now why it is beneficial and why it is
important because the creditors or treat
payables whom we are doing transactions
or if we are doing transaction with some
new party or if we are approaching Bal
for a loan so they need to know that how
prompt will be payment made to them so
they need to know that fourth SAR
payment making ability when it is
concerned about the short term
now liquidity ratio is further
classified into two the first one is the
current ratio and the second is the
quick ratio or liquid ratio now comes
ss4 solvency ratio now this solvency
ratio tells us about the ability now
here you see a clock but clock does not
have that needle so this means a clock
is telling us about the ability of a
firm to pay the long-term liabilities
which are not going to make sure today
not tomorrow these are long-term
liabilities so the firm's ability to pay
long-term liabilities when they are
going to make sure and their interest
cost which are to be paid regularly so
it tells us about the long-term solvency
position it also tells us about the
composition of the internal funds and
the external points now internal funds
is the promoters you can see the
proprietor contribution on initial
investment in external can be defined as
the poorest in an investment
now this solvency ratio is further
classified or divided into four first
debt to equity ratio second total assets
to depth ratio third is proprietary
ratio and the fourth and last one is the
interest coverage ratio
now comes the third category that is the
activity ratio the other name for the
activity is the turnover ratio now this
ratio tells us the forms ability or how
effectively they are using their
resources why they are using their
resources to generate revenue so the
other name for this ratio can be revenue
from operations now what are the
different types of activity or turnover
ratio it is inventory receivable
turnover be able turnover that is the
creditors turnover ratio and the fourth
is working capital turnover ratio so
activity or turnover ratio tells us
revenue operations now the fourth and
the last one is the profitability ratio
now everyone and each of us knows that
what is the mean team of doing business
the main aim is to earn profit and this
profitability ratio helps us to know and
compare the profitability of a company
it tells us that increase and decrease
in the profit and the reason for that
now profitability ratio are of five
types cross profit ratio operating ratio
the third one is the operating profit
ratio the fourth is net profit ratio and
fifth is our Y daughter's return on
investment so are these only ratios no
there are more ratios that we will also
discuss so these are some commonly used
ratios that we can see so I hope that
this this introduction helps you thank
you
you