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Ratio analysis

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Marudhachalamurthi asked over 3 years ago

What is ratio analysis how it is helpful for the business?

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7 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Ashika answered almost 3 years ago

-Ratio analysis is an important tool for analyzing the company's financial performance. -Ratio analysis is a tool brought into play by individuals to carry out an evaluative analysis of information in the financial statements of a company. -These ratios are calculated from current year figures and then compared to past years, other companies, the industry, and also the company to assess the performance of the company. -Besides, ratio analysis is used predominantly by proponents of financial analysis. The ratio analysis forms an essential part of the financial analysis which is a vital part of business planning. The key benefits of ratio analysis include: Determines profitability Ratio analysis assists managers to work out the production of the company by figuring the profitability ratios. Also, the management can evaluate their revenues to check if their productivity. Thus, probability ratios are helpful to the company in appraising its performance based on current earning. Helpful in evaluating solvency By computing the solvency ratio, the companies are able to keep an eye on the correlation between the assets and the liabilities. If, in any case, the liabilities exceed the assets, the company is able to know its financial position. This is helpful in case they wish to set up a plan for loan repayment. Better financial analysis Ratio analysis is also helpful to recluses, in addition to shareholders, debenture holders, and creditors. Besides, bankers are also able to know the profitability of the company to find out whether they are able to pay the dividend and interests under a specific period. Performance analysis Ratio analysis is also helpful in analyzing the performance of a company. Through financial analysis, companies can review their performance in the past years. This is also helpful in identifying their weaknesses and improving on them.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered almost 3 years ago

By computing the solvency ratio, the companies are able to keep an eye on the correlation between the assets and the liabilities. If, in any case, the liabilities exceed the assets, the company is able to know its financial position. This is helpful in case they wish to set up a plan for loan repayment.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

> Ratio analysis -Ratio analysis is an important tool for analyzing the company's financial performance. -Ratio analysis is a tool brought into play by individuals to carry out an evaluative analysis of information in the financial statements of a company. -These ratios are calculated from current year figures and then compared to past years, other companies, the industry, and also the company to assess the performance of the company. -Besides, ratio analysis is used predominantly by proponents of financial analysis. **The ratio analysis forms an essential part of the financial analysis which is a vital part of business planning. The key benefits of ratio analysis include:** **Determines profitability** Ratio analysis assists managers to work out the production of the company by figuring the profitability ratios. Also, the management can evaluate their revenues to check if their productivity. Thus, probability ratios are helpful to the company in appraising its performance based on current earning. **Helpful in evaluating solvency** By computing the solvency ratio, the companies are able to keep an eye on the correlation between the assets and the liabilities. If, in any case, the liabilities exceed the assets, the company is able to know its financial position. This is helpful in case they wish to set up a plan for loan repayment. **Better financial analysis** Ratio analysis is also helpful to recluses, in addition to shareholders, debenture holders, and creditors. Besides, bankers are also able to know the profitability of the company to find out whether they are able to pay the dividend and interests under a specific period. **Performance analysis** Ratio analysis is also helpful in analyzing the performance of a company. Through financial analysis, companies can review their performance in the past years. This is also helpful in identifying their weaknesses and improving on them. **Forcasting** At present, many companies use ratio analysis to reveal the trends in production. This provides them an opportunity for estimation of future trends and thus the foundation for budget planning so as to determine the course of action for the growth and development of the business.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered about 3 years ago

Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items in financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item – or a combination of items - to another item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered about 3 years ago

**RATIO ANALYSIS** Ratio analysis is a very useful management tool that will develop one's understanding of financial results and trends over time, and provide key signals of organizational performance. Ratio analysis is used by managers to find strengths and weaknesses from which strategies can be formed. Funders may use ratio analysis to measure your results against other organizations or make judgments concerning management effectiveness and mission impact. Thanks

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Open uri20170510 32134 tcchcu?1494421832 Jitendra Suthar answered over 3 years ago

Hiiiiii friend,,,,, Ratio Analysis -------------- - Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement. - Financial ratios are the most common and widespread tools used to analyze a business' financial standing. Ratios are easy to understand and simple to compute. They can also be used to compare different companies in different industries. Since a ratio is simply a mathematically comparison based on proportions, big and small companies can be use ratios to compare their financial information. In a sense, financial ratios don't take into consideration the size of a company or the industry. Ratios are just a raw computation of financial position and performance. - Ratios allow us to compare companies across industries, big and small, to identify their strengths and weaknesses. Financial ratios are often divided up into six main categories: liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage. The following types of Ratios can be used for business • Receivables Turnover Ratio • Asset Turnover Ratio • Cash Conversion Cycle • Cash Ratio • Compound Annual Growth Rate • Contribution Margin • Current Ratio • Days Sales in Inventory • Days Sales Outstanding • Debt Ratio etc.... Regards,

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Open uri20170510 32134 1nqu8aj?1494421649 sowmya answered over 3 years ago

HII Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items in financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item – or a combination of items - to another item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis. Ratio analysis is a good way to evaluate the financial results of your business in order to gauge its performance. Ratios allow you to compare your business against different standards using the figures on your balance sheet. Accounting ratios can offer an invaluable insight into a business' performance. Ensure that the information used for comparison is accurate - otherwise the results will be misleading. There are four main methods of ratio analysis - liquidity, solvency, efficiency and profitability. Liquidity ratios There are three types of liquidity ratio: Current ratio - current assets divided by current liabilities. This assesses whether you have sufficient assets to cover your liabilities. A ratio of two shows you have twice as many current assets as current liabilities. Quick or acid-test ratio - current assets (excluding stock) divided by current liabilities. A ratio of one shows liquidity levels are high - an indication of solid financial health. Defensive interval - liquid assets divided by daily operating expenses. This measures how long your business could survive without cash coming in. This should be between 30 and 90 days. Solvency ratios Gearing is a sign of solvency. It is found by dividing loans and bank overdrafts by equity, long-term loans and bank overdrafts. The higher the gearing, the more vulnerable the company is to increasing interest rates. Most lenders will refuse further finance where gearing exceeds 50 per cent. Efficiency ratios There are three types of efficiency ratio: Debtors' turnover - average of credit sales divided by the average level of debtors. This shows how long it takes to collect payments. A low ratio may mean payment terms need tightening up. Creditors' turnover - average cost of sales divided by the average amount of credit that is taken from suppliers. This shows how long your business takes to pay suppliers. Suppliers may withdraw credit if you regularly pay late. Stock turnover - average cost of sales divided by the average value of stock. This ratio indicates how long you hold stock before selling. A lower stock turnover may mean lower profits. Profitability ratios Divide net profit before tax by the total value of capital employed to see how good your return on the capital used in your business is. This can then be compared with what the same amount of money (loans and shares) would have earned on deposit or in the stock market. You could also use the net profit ratio to evaluate your profitability. Divide the net profit before tax by the total value of net sales (sales less returns) to see how good your net profit is. This can then be compared with the same ratio in other periods or with the ratio of competitors. Net profit ratio is one of the ratios used by analysts to determine whether a business is making progress.

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