Summary: Accounting Ratios

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

## Accountancy Class 12

49 videos|111 docs|56 tests

## FAQs on Summary: Accounting Ratios Video Lecture - Accountancy Class 12 - Commerce

 1. What are accounting ratios?
Ans. Accounting ratios are quantitative measures used to analyze and evaluate a company's financial performance. They are calculated by comparing different financial statement items to provide insights into a company's liquidity, profitability, efficiency, and solvency.
 2. How can accounting ratios be useful for decision-making?
Ans. Accounting ratios can be useful for decision-making as they provide a snapshot of a company's financial health and performance. By analyzing different ratios, such as the current ratio, return on investment, or debt-to-equity ratio, decision-makers can assess the company's strengths and weaknesses and make informed decisions regarding investments, financing, or operational improvements.
 3. What is the significance of liquidity ratios in accounting?
Ans. Liquidity ratios in accounting measure a company's ability to meet its short-term obligations. They provide insights into the company's liquidity position by comparing its current assets to its current liabilities. High liquidity ratios indicate that the company has enough liquid assets to cover its short-term debts, while low liquidity ratios may signal potential financial difficulties.
 4. How can profitability ratios help assess a company's financial performance?
Ans. Profitability ratios help assess a company's financial performance by measuring its ability to generate profits relative to its sales, assets, or equity. These ratios, such as gross profit margin, net profit margin, or return on equity, provide insights into the company's efficiency, pricing strategies, and overall profitability. Comparing profitability ratios over time or against industry benchmarks can help identify areas for improvement or potential competitive advantages.
 5. Can accounting ratios be used to evaluate a company's solvency?
Ans. Yes, accounting ratios can be used to evaluate a company's solvency. Solvency ratios assess a company's long-term financial stability and its ability to meet its long-term obligations. Ratios such as the debt-to-equity ratio or interest coverage ratio indicate the company's level of debt and its ability to generate enough income to cover interest expenses. By analyzing these ratios, stakeholders can evaluate whether a company has a sustainable financial structure and can honor its long-term commitments.

## Accountancy Class 12

49 videos|111 docs|56 tests

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