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Ratio Analysis
A ‘Ratio’ is a
arithmetical expression of relationship between two related and inter-dependent
items. It is used to evaluate various aspects related to company’s operating
and financial performance. It also helps to calculate the efficiency, liquidity,
solvency and profitability of the company. Accounting Ratio based on Accounting
Data. In other words, accounting ratio defines as quantitative relationship between
two or more than two variables. “Ratio Analysis” is the one of the
powerful techniques for analysis and interpretation of Financial Statement. It involves
four steps mainly.
1. Selection of relevant Data: Relevant
data are selected from the financial statement which is depending upon the objective
of the analysis.
2. Calculations of Ratio: After selecting
the relevant data appropriate ratio are calculated according to the objective.
3.
Comparison of Ratios: Ratios are
compared with the past ratios.
Interpretation of
Ratios: After comparison of ratio, interpreted the ratio and drawn the
conclusion. 
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