Comparative Ratio Analysis
June 2, 2014
Comparative and Ratio Analysis
Comparative and ratio analysis are two of the most common types of analyses used in examining a company’s fiscal records, and both used the same information contained in a firm’s financial statements. This paper is written better understand the role of each type of analysis in evaluating a company this paper expounds on such involvement. Definition
Ratio analysis assesses the association among the different components of a firm’s fiscal report. It converts quantitative information found in financial statements into ratios for a more significant differentiation of various performance period of a company. It identifies trends over time for the company and can be used to compare several companies at a specific point in time.
Comparative analysis is an item-by-item comparison of the different component found in a financial statement. The comparison is done on a financial statement item over several accounting periods which can help identify any changes in the firm’s operations and results.
The purpose of the comparative and ratio analysis is to determine a company’s financial health and evaluate its performance during a specific period. The comparative analysis allows investors to see the actual earnings of a company whereas ratio analysis allows investors to use formulas such as liquidity, solvency and profitability in order to determine its success (Kimmel, Weygandth, & Kieso, 2009).
Comparative and ratio analysis allow a company to compare its own performance over periods of time in relation to other companies and to itself. This information is important in evaluating a company’s weaknesses, and make judgment as to how efficiently its assets are being utilized.
The financial standing, performance, and valuation for a company compared to