Awesome Ratio Analysis And Types
Learning Objectives Classify a financial ratio based on what it measures in a company.
Ratio analysis and types. Ratio analysis is referred to as the study or analysis of the line items present in the financial statements of the company. Ratio analysis consists of calculating financial performance using five basic types of ratios. Ratio analysis is useful to shareholders creditors and executives of the company.
D Activity Ratios such as Inventory Turn Over Ratio Debtor Turnover Ratio Working Capital Turnover Ratio measure the efficiency with which the resources of a firm have been employed. Profitability liquidity activity debt and market. Rearrangement of Financial Statements.
It is used to evaluate various aspects of liquidity the efficiency of operations and profitability to understand a companys financial health. Ratio analysis is a quantitative method of gaining insight into a companys liquidity operational efficiency and profitability by studying its financial statements such as the balance sheet and. It can be used to check various factors of a business such as profitability liquidity solvency and efficiency of the company or the business.
Ratio analysis is a term widely used in business accounting in comparing different line items in the companys balance sheet to understand its progress over time. Liquidity Ratios Solvency Ratios Activity Ratios and Profitability Ratios. There are mainly 4 different types of accounting ratios to perform a financial statement analysis.
Ratios may be expressed in 3 forms a as quotient 11 or 21 etc. For the purpose of analysing the balance sheet and the profit and loss account to compute ratios it is useful to rearrange and redraft them. Based on the purpose the ratios are classified as profitability ratios turnover ratios and financial ratios or solvency ratios.
A financial ratio is a mathematical expression demonstrating a relationship between two independent or related accounting figures.