Wednesday, 13 November 2019

Unit 4: Ratio Analysis


                                                     Unit 4: Ratio Analysis   

Ratio analysis is one of the important tools of fi nancial statement analysis to study the fi nancial structure of the business fl eeces.

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's fi nancial statements.

The level and historical trends of these ratios can be used to make inferences about a company's fi nancial condition, its operations and attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a company's fi nancial statements.

A ratio gains utility by comparison to other data and standards.

Ratios are classifi ed as liquidity, leverage, profi tability, activity, integrated and growth ratio.

Although fi nancial ratio analysis is well-developed and the actual ratios are well-known, practicing fi nancial analysts often develop their own measures for particular industries and even individual companies.

Analysts often differ drastically in their conclusions from the same ratio analysis.

Balance Sheet or Positional Statement Ratios: These type of ratios are calculated from the balance sheet of the enterprise which normally reveals the fi nancial status of the position i.

short-term, long-term fi nancial position, Share of the owners on the total assets of the enterprise and so on.

Capital Structure Ratios: The capital structure position are analysed through leverage ratios as well as coverage ratios.

Current Assets: Current assets are in the form of cash, equivalent to cash or easily convertible into cash.

Current Liabilities: Current liabilities are short-term fi nancial resources or payable in short span of time within a year.

Income Statement Ratios: These ratios are computed from the statements of Trading, Profi t & Loss account of the enterprise.

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