Accounting | Ratio Analysis in Financial Mangement

Ratio analysis is a financial technique of analysing the financial information contained in balance sheet and profit & loss account. It provides meaningful understanding of financial position and performance of a firm.

Usefulness of Ratio Analysis:
* Aid managers in planning and controlling financial activities.
* Use in investment and leading decisions.
* Use in evaluating or measuring management's efficiency or inefficiency.
* Use in evaluating financial position and performance of a firm.
* Use in providing relevant data for comparison of highly competitive business environs.
* It is also used in comparing different time data of one firm to another.

Types of Ratio Analysis:
* Investment Ratio (Dividend, Price & Earning Yields)
* Asset Efficiency Ratio
* Leverage Ratio (Equity, Capital gearing, Time interest, Cash & fixed charge coverage)
* Activity Ratio (Sales to Debtors, Average collection period, Total assets & stock turnover)
* Liquidity Ratio (Quick assets/acid test , Current, solvency, liabilities)
* Profitability Ratio (Gross & net profit margin, ROAM, ROCE, ROE)
* Market Value Ratio

Users of Ratio Analysis:
* Managers/Management
* Financial Analyst
* Researchers
* Auditors
* Investors
* Creditors
* Governments
* Shareholders