RATIO ANALYSIS

THE ACCOUNTING RATIO IS USED TO DESCRIBE THE RELATIONSHIP BETWEEN FIGURES SHOWN
IN A BALANCE SHEET,IN A PROFIT AND LOSS ACCOUNT, IN A BUDGETARY CONTROL SYSTEM OR
IN ANY OTHER PART OF THE ACCOUNTING ORGANISATION.
RATIO ANALYSIS IS A VERY POWERFUL TOOL USEFUL FOR MEASURING PERFORMANCE OF AN
ORGANISATION
IT IS EXTREMELY HELPFUL IN PROVIDING VALUABLE INSIGHTS INTO A COMPANY‘S FINANCIAL
PICTURE
IT PINPOINT A BUSINESS FIRM‘S STRENGTHS AND WEAKNESS
 IMPORTANCE OF RATIO ANALYSIS

• IT IS A VERY POWERFUL ANALYTICAL TOOL USEFUL FOR MEASURING PERFORMANCE OF AN

ORGANISATION
• IT CONCENTRATES ON THE INTERRELATIONSHIP AMONG THE FIGURES APPEARING IN THE
FINANCIAL STATEMENTS
• IT HELPS THE MANAGEMENT TO ANALYSE THE PAST PERFORMANCE OF THE FIRM AND TO MAKE
FURTHER PROJECTIONS
• IT ALLOWS INTERESTED PARTIES TO MAKE EVALUATION OF CERTAIN ASPECTS OF THE FIRM‘S
PERFORMANCE
 LIMITATIONS OF RATIO ANALYSIS

• IT IS AFFECTED BY THE FINANCIAL BASES POLICIES ADOPTED BY THE FIRM

• RATIOS ARE CALCULATED FROM PAST DATA , THERE IS NO INDICATORS OF FUTURE
• NON FINANCIAL PERFORMANCE INDICATORS ARE NOT CONSIDERED