Ratio Analysis
Financial ratio is very useful instrument to get a clear view of financial performance, position and health of a company. Financial statement analysis is a process by which analyst make comparison with relevant information and finds relationship among the financial statements elements. The main purpose in analyzing the financial statements is to assess the past performance and current financial position of company which helps in forecasting future performance and position of a company.
Financial ratios are expressed in percentage form or number of times in a accounting period. Financial ratios are used in a very systematic way to explain the financial statements to know the financial performance, position and health of a company as well its strength and weaknesses. Financial ratios helps to assess the ability of a business to payback its debt and also helps in assessing its ability to meet its current liabilities out of current assets. Financial ratio helps to know profitability of a business, its liquidity, solvency and leverage. All these ratios help the stakeholders of company in their decisions regarding investment and credit decision etc. Financial ratio helps in comparing a company’s performance with respect to previous performance and with its competitors.
a) Liquidity Ratios
b) Leverage Ratios
c) Profitability Ratios
d) Activity Ratios
e) Market Ratios
f) Statements of Cash Flow
Horizontal analysis is done by computing the increase or decrease in percentage terms of each item from the prior year. It highlights items that have changed unexpectedly or have unexpectedly remained unchanged. It uses one year's worth of entries as a baseline while every other year represents differences in terms of changes to that baseline.
No comments:
Post a Comment