OBJECTIVES OF RATIO ANALYSIS & STEPS IN RATIO ANALYSIS

OBJECTIVES OF RATIO ANALYSIS & STEPS IN RATIO ANALYSIS

  01:10    Rahul R

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Ratios are worked out to analyze the following aspects of business organization-

1.      Solvency

2.      Stability

3.      Profitability

4.      Operational efficiency

5.      Credit standing

6.      Structural analysis

7.      Effective utilization of resources

8.      Leverage or external financing

STEPS IN RATIO ANALYSIS

a.       The first task of the financial analysis is to select the information relevant to the decision under consideration from the statements and calculates appropriate ratios.

b.      To compare the calculated ratios with ratios of the same firm relating to the past or with the industry ratios. It facilitates is assessing success or failure of the firm.

c.       Third step is ti interpretation, drawing of inferences and report writing conclusions are drawn after comparison in the shape of report or recommended courses of action.