CURRENT RATIO.

CURRENT RATIO.

            Current Ratio is equal to Current Assets divided by current liabilities. This ratio shows a business ability to cover its short term liabilities out of its current assets. Higher current ratio shows that business has sufficient resources to pay its current obligations. Normally Current assets are consists of Stores, spare and loose tools, inventory, Trade Debts, Advances, deposits, prepayment, Cash and cash equivalent. Current liabilities includes Trade and other payable, markup accrued, accrued expenses, short term borrowing, current portion of long term liabilities.

Current Ratio =	Current Assets
	Current Liabilities

Liquidity Ratios

Liquidity Ratios

            Liquidity ratios are very useful in measuring the ability of a firm to meets its short term obligation out of current assets which are readily convertible to cash. In these ratios current assets are compared with current liabilities whether they are sufficient to meets its current obligations.

Financial Statement Analysis

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:

            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.

Vertical Analysis:

            It is a technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100.