Importance Of Ratio Analysis

Financial statement have to major uses in financial analysis first, they one used to present a historical recover of the firm’s financial development when competed over a number of years a trained analyst can determine important financial factors that have in the ended the growth and Current assets of the firm. Second, they are used to here cast a course of action for the firm. A performance financial statement is prepared for a future period. It is the financial manager’s estimate of the firm’s future performance.

The operation and performance of a business depends on many individuals are collective decisions that are continually made by its management team. Every one of these decisions ultimately causes a financial impact, for better or

It is used as a device to analyze and interpret the financial health of enterprise. Thus ratios have wide applications and are of immense use today.

Managerial uses of ratio analysis

a. Helps in decision making
Financial statements are prepared primarily for decision-making. Ratio analysis helps in making decision from the, information provided in these Financial Statements.

b. Helps in financial forecasting and planning
Ratios analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years to work as a guide for the future. Thus, ratio analysis helps in forecasting and planning.

c. Helps in communicating
The financial strength and weakness of a firm are communicated in a more easy and understandable manner by using ratios. Thus, ratios help in communication and enhance the value of the financial statements.

d. Helps in co-ordination
Ratios even help in co-ordination, which has a most importance in effective business management. Better communication of efficiency and weakness of an enterprise result in better co-ordination in the

Financial aspects assume a significant role in determining the growth of industries. All of the company’s operations virtually affect its need for cash. Most of these data covering operations areas are however outside the direct responsibility of the financial executives. Top management appreciates the value of good financial executives to know the profitability and liquidity of the concern. The firm whose present operations are inherently difficult should try to makes its financial analysis to enable its management to stay on top of its working position. In this context the researcher is interested in analysis of the financial performance of companies to examine and to understand how management of finance department plays a crucial role in the financial performance analysis of selected companies in India has been