19

Financial Ratio Analysis

OBJECTIVES

To highlight the significance of financial ratio analysis

To explain and compute different types of liquidity ratios

To explain and compute profitability ratios

To elucidate and calculate ownership ratios

To pinpoint the limitations to ratio analysis

Once the financial statements are prepared, the figures therein must then be interpreted. The relationship between two sets of figures is established and on that basis, the necessary inference is drawn so as to bring about changes if necessary in the financial policy. The present chapter discusses this process which is also known as the financial ratio analysis.

19.1 SIGNIFICANCE OF RATIO ANALYSIS

The relationship between two items of financial data expressed ...

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