Ratio Analysis

Ratio Analysis is one of the powerful tools of the financial analysis. Ratios can be used as a yardstick for evaluating the financial position and performance of a concern, because the absolute accounting data cannot provide meaningful understanding and interpretation.

Advantages of Ratio Analysis:

  • Useful in financial position analysis
  • Useful in comparison of performance
  • Useful in assessing the operational efficiency
  • Useful in forecasting purposes
  • Useful in locating the weak spots of the business

Limitations of Ratio Analysis:

  • False results if based on incorrect data
  • No common standards
  • Effects of Price level changes
  • No idea of probable happenings in future
  • Qualitative factors are ignored

Among the dozens of financial ratios, we've chosen most relevant measurements to the investing process and organized them into the following list:


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