Definitions [1]
Definition: Ratio Analysis
- "Ratio analysis is a study of relationship among various financial factors in a business'' - Myres
- The use of different types of accounting ratios to evaluate the financial performance of business is called Ratio Analysis.
Key Points
Key Points: Ratio Analysis
- Meaning: Ratio analysis studies financial relationships to assess a business’s performance and financial position.
- Objectives: It simplifies data, identifies weak areas, checks solvency and profitability, and supports planning.
- Advantages: Helps with decision-making, shows trends, and supports comparisons across firms and over time.
- Use in Comparison: Allows inter-firm and intra-firm comparisons to evaluate business efficiency.
- Limitations: Depends on data accuracy, may ignore qualitative factors, and is affected by policies and bias.
- Important Reminder: Use ratio analysis with care, considering its limitations and verifying data before conclusions.
