Question

Short Answer Question

What do you mean by Ratio Analysis?

What is ‘Ratio Analysis’?

Answer 1

Ratio Analysis is a technique of financial analysis. It describes the relationship between various items of Balance Sheet and Income Statements. It helps us in ascertaining profitability, operational efficiency, solvency, etc. of a firm. It may be expressed as a fraction, proportion, percentage and in times. It enables budgetary controls by assessing qualitative relationship among different financial variables. Ratio Analysis provides vital information to various accounting users regarding the financial position and viability and performance of a firm. It also lays down the basic framework for decision making and policy designing by management.

Answer 2

According to Myers, ratio analysis is a study of relationship among various items or groups of items in financial statements. Ratio analysis is an analytical tool in management accounting that evaluates a company’s financial performance and condition. It involves calculating and interpreting ratios from financial statements such as the Balance Sheet and Statement of Profit and Loss.