Ratio Analysis

Powerful Essays
Financial Ratios: What They MeanIn assessing the significance of various financial data, managers often engage in ratio analysis, the process of determining and evaluating financial ratios. A financial ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets and current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the company's financial statements that contain figures on assets, liabilities, profits, and losses. Ratios are only meaningful when compared with other information. Since they are often compared with industry data, ratios help managers understand their company's performance relative to that of competitors and are often used to trace performance over time.Ratio analysis can reveal much about a company and its operations. However, there are several points to keep in mind about ratios. First, a ratio is just one number divided by another. Financial ratios are only "flags" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of a company's management and economic circumstances, ratio analysis can tell much about a corporation. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, a financial ratio is meaningful only when it is compared with some standard, such as an industry trend, ratio trend, a ratio trend for the specific company being analyzed, or a stated management objective.In trend analysis, ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with three to five years of ratios.The second type of ratio analysis, cross-sectional analysis, compares the ratios of two

You May Also Find These Documents Helpful

  • Powerful Essays

    ratio analysis

    • 4042 Words
    • 17 Pages

    Financial Ratio: A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise 's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm 's creditors. Security analysts use financial ratios to compare…

    • 4042 Words
    • 17 Pages
    Powerful Essays
  • Powerful Essays

    Ratio Analysis

    • 14029 Words
    • 57 Pages

    A Project Report On “Financial Analysis of Bansal Biscuit Pvt Ltd.” Submitted to In partial fulfillment for the course of “Post Graduate Diploma in Management” Under the Supervision of: Submitted By: Prof. PRADEEP VERMA PRASHANT KUMAR Faculty & Guide at AIMT Batch PGDM (2012-14) Roll No. DM1214126 Accurate Institute of Management & Technology, Greater Noida…

    • 14029 Words
    • 57 Pages
    Powerful Essays
  • Satisfactory Essays

    Ratio Analysis

    • 920 Words
    • 4 Pages

    Ratio Analysis: 2009 | 2010 | 0.53 | 0.51 | Current Ratio: Analysis: 2:1 is the benchmark of current ratio. Here in 2007 current asset is 0.53 against 1 current liability. In every year the company is unable to increase their current ration. Because the current ratio in 2010 decreases to 0.51. The company has a small amount of current asset for each amount of current liability in every year and its improvement was not that much remarkable. Though the company never crossed…

    • 920 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Ratio Analysis

    • 320 Words
    • 2 Pages

    CLASSIFICATION OF RATIO ANALYSIS "Ratios" can be grouped into various classes according to "financial" activity or function to be evaluated. In view of the requirements of the various users of "ratios", we can classify then into the following categories. Liquidity "Ratios" Profitability "Ratios" Solvency "Ratios" "Financial" statement "analysis" is a judgemental process. One of the primary objectives is identification of major changes in trends and relationships and the investigation of the…

    • 320 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Ratio Analysis

    • 17635 Words
    • 71 Pages

    RATIO ANALYSIS AS A TOOL FOR DETERMINING CORPORATE PERFORMANCE ( A STUDY OF SELLECTED BANKS IN NIGERIA) RATIOS ANALYSIS AS A TOOLS FOR DETERMINING CORPORATE PERFORMANCE :( A STUDY OF SELECTED BANKS IN NIGERIA) BEING A RESEARCH PROJECT SUBMITTED TO THE POSTGRADUATE SCHOOL IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA) OF AHMADU BELLO UNIVERSITY,ZARIA NIGERIA DEPARTMENT OF BUSINESS ADMINISTRATION,…

    • 17635 Words
    • 71 Pages
    Powerful Essays
  • Good Essays

    Ratio Analysis

    • 700 Words
    • 3 Pages

    better known as ratio analysis. Ratios are among the more widely used tools of financial analysis because they provide clues to and symptoms of underlying conditions.2 Ratios help measure a company's liquidity, activity, profitability, leverage and coverage.1 These five measured sections show how ratio analysis is used in decision-making, how a firm can measure its financial situation and financial performance, and the strengths and weaknesses of the company. The term ratio analysis can be broken…

    • 700 Words
    • 3 Pages
    Good Essays
  • Best Essays

    Ratio Analysis

    • 2400 Words
    • 10 Pages

    Principles learnt (for example, number and understanding of principles referred to, their influence on the structure of this paper, number and correct citations of references, use of appropriate jargon) Application of principles. That is, the analysis and evaluation of the example problem based on the principles, including the final recommendations and their justification /4 /8 How well the example problem was described, including the extent and depth of information (including the data) about it that was accessed…

    • 2400 Words
    • 10 Pages
    Best Essays
  • Powerful Essays

    Ratio Analysis

    • 3283 Words
    • 14 Pages

    Ratio Analysis Name: Agbasimelo E. Ifeanyi Roll no: @00316215 Instructed by: David Wright PART A PAGE 1.1 Sales turnover index 4 1.2 Gross profit margin 4 1.3 Net profit margin 5 1.4 Return on capital employed 5 1.5 Current ratio 6 1.6 Acid test ratio 7 1.7 Interest cover ratio…

    • 3283 Words
    • 14 Pages
    Powerful Essays
  • Good Essays

    Ratio Analysis

    • 683 Words
    • 3 Pages

    RATIO ANALYSIS (ALL VALUES IN Rs. MILLION) 1. GROSS PROFIT MARGIN (%): GROSS PROFIT = NET SALES – COGS = TOTAL REVENUE – (Employee Benefit Expense + Operating and Other Expenses + Finance Costs) = 53107 – (22510+21598+1025) = 7974 GROSS PROFIT MARGIN = (NET SALES – COGS)/NET SALES = (7974/ 53107)*100 = 15.01497% 2. RETURN ON ASSET(RoA) RETURN ON ASSET = (PAT/TOTAL ASSET)*100 = (4606/63454)*100 = 7.258% This indicates that around 7.3% of all assets have been utilized…

    • 683 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Ratio Analysis

    • 374 Words
    • 2 Pages

    25, 2012 Re: Huffman Trucking Ratio Analysis Team B has completed a ratio analysis on Huffman Trucking. Our team has looked over financial statements to determine the liquidity, profitability, and solvency ratios of Huffman Trucking. These ratios provide detailed information to creditors, investors, and employees. Together, the ratios reveal data related to the performance and position of Huffman Trucking. What do the liquidity, profitability, and solvency ratios reveal about the company’s financial…

    • 374 Words
    • 2 Pages
    Satisfactory Essays