Ratio analysis refers to an analytical process in which the financial statements are analyzed. Ratio analysis helps to compare between current performances with previous. It compares the company performance with its other competitors. It is widely used as a powerful tool of financial statement. It helps to examine company performance and to analyses position of company. It also helps to identify and monitor company issues.
Advantages/Importance of Ratio analysis
- Analysis of financial position: Ratio analysis is an analytical process which helps to analysis of financial position of business organization.
- Comparison of performance: It helps to compare between current performances with previous and helps to ascertain financial statements.
- Measurement of operating efficiency: It also helps organization to measure efficiency and helps to identify and monitor company issues.
- Inter-firm comparison: This process helps business organization to compare its performance with other organization. The best way of inter-firm comparison is to compare the relevant ratios of the organisation with the average ratios of the industry.
Disadvantages/Limitations of ratio analysis
- Historical information: Ratio analysis provides historical information and it is safe as proof but it doesn’t effect current conditions.
- Lack of standard of comparison: There is a lack of standard comparison and no fixed standardize ration laid down from current information.
- Ratio analysis explains relationships between past information while users are more concerned about current and future information.
- Window dressing: It means an arrangement which present financial statement in such a way which show better position then its actual position. It is a technique used by companies and financial managers to manipulate financial statements and reports to show more favorable results for a period.
- Quantitative analysis: In ratio analysis only quantitative ratios are taken but qualitative ratios are ignored in this process.
Accountancy, basic concept of ratio analysis, concept of financial ratio analysis, definition of ratio analysis by different authors, describe the concept of ratio-analysis with its objectives and limitations, explain the concept of ratio analysis its merits and limitations, meaning of ratio analysis in management accounting, Ratio Analysis, ratio analysis accounting pdf, ratio analysis advantages and disadvantages, ratio analysis and its types, ratio analysis balance sheet and income statement, ratio analysis between two companies, ratio analysis in accounting, ratio analysis meaning in hindi, Ratio analysis notes for b.com students for free download, ratio analysis of the financial statements, ratio analysis pdf ppt slideshare, RATIO ANALYSIS: Meaning Definition Importance/Advantages and Limitations/Disadvantages,