Understanding Financial Performance Through Ratio Analysis

Ratio analysis is a vital tool in financial management and accounting that helps in evaluating a company's performance and financial position. It involves analyzing various ratios such as liquidity, activity, profitability, and leverage to gain insights into the business's financial health. Different types of financial ratios are classified based on their use and purpose, offering valuable information for decision-making and strategic planning.

• Financial analysis
• Ratio analysis
• Financial management
• Accounting
• Business performance

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1. Ratio Analysis Financial Management and Financial Accounting (DBM-422) A K JHA

2. INTRODUCTION Prepared after preparation of Financial Statements Prepared for better understanding of Financial Statements Helps understand fiscal position of the company Ratio analysis is one of the analytical tool to find out the performance of a business venture.

3. These ratios have been classified as measuring (1) Liquidity (current ratio, acid-test ratio, etc.) (2) Activity (receivables turnover, inventory turnover, etc.) (3) Profitability (profit margin on sales, rate of return on assets, earnings per share, etc.) and (4) Leverage (debt to total assets, times interest earned, etc.). It is the

4. Ratio analysis is done to see various financial implications of business transactions. It is done to analyse the performance of the business.

5. TYPES OF FINANCIAL RATIOS There are two approaches Classical approach Ratios are classified on the basis of the accounting statement from where they are obtained Functional classification based on the use and purpose

6. Traditional Classification has three types Profit and Loss Ratios Balance Sheet Ratios Composite Ratios