RATIO ANALYSIS

Definition: Ratio Analysis is a quantitative method of gaining insight into a company’s liquidity,
operational efficiency, and profitability by studying its financial statements.
Ratio Analysis tell us: Investors and analysts employ ratio analysis to evaluate the financial
health of companies by scrutinizing past and current financial statements. Comparative data can
demonstrate how a company is performing over time and can be used to a telegraph likely future
performance. This data can also compare a company’s financial standing with industry averages
while measuring how a company stacks up against others within the same sector.

IMPORTANCE OF RATIO ANALYSIS:

 To judge financial position.
 To judge financial performance.
 Financial decision.

CLASSIFICATION OF RATIOS ON VARIOUS BASIS:

On The Basis Of On The Basis Of Profit And On The Basis Of Balance Sheet
Balance Sheet Loss Account and Profit And Loss Account

1) Current Ratio 1) Gross Profit Ratio 1) Stock Turnover Ratio

2) Liquid Ratio
3) Absolute Liquid Ratio
4) Debt Equity Ratio
5) Proprietary Ratio
6) Capital Gearing Ratio
7) Assets-Proprietorship
Ratio
8) Capital Inventory to
Working Capital Ratio
9) Ratio of Current Assets
to Fixed Assets
2) Operating Ratio 2) Debtors Turnover Ratio
3) Operating Profit Ratio 3) Payable Turnover Ratio
4) Net Profit Ratio 4) Fixed Asset Turnover Ratio
5) Expense Ratio 5) Return on Equity
6) Interest Coverage Ratio 6) Return on Shareholder's
Fund
7) Return on Capital
Employed
8) Capital Turnover Ratio
9) Working Capital Turnover
Ratio
10) Return on Total Resources
11) Total Assets Turnover