Ratio Analysis Essay

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Recommended: Review of literature on financial performance in ratio analysis

THEORY OF RATIO ANALYSIS

Ratio Analysis
Ratio analysis is a widely used of financial analysis. It is defined as the systematic use of ratio so that the financial statements can be interpret to find a firm’s strengths and weakness as well as its historical performance and current financial condition. Ratios reveal the relationship in a more meaningful way so as to enable us to draw conclusions from them.
The rational of ratio analysis lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when compared in terms of a related figure, it yields significant inferences.
Ratio is very useful to for understanding the message of the financial statement. It helps to enlarge the financial health and reveals the performance of a business and makes it possible to forecast about future state of the business by studying the historical data.
Financial statements are those statements which provide information about profitability and financial position of a business. It includes two statements, i.e., profit & loss a/c or income statement and bal...

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