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steps involved in ratio analysisthe following are the four steps involved in the ratio analysis1 selection of relevant data from the financial
objectives of ratio analysis1 measuring the profitability we can measure the profitability of the business by calculation gross profit net profit
advantages of ratio analysis1 helpful in financial analysis financial analysis is easier if accounting ratios are used to analyze the different
disadvantages of ratio analysis1 false results ratios are based upon the financial statement in case financial ratio is incorrect or the data upon
determine the traditional classificationa balance sheet or position statement ratios balances sheet ratios deal with the relationship among two
explain functional classification a liquidity ratio these are the ratio which measures the short term solvency or financial position of a firm
classification of ratio according to significance the ratios have also been classified according to their significance some ratios are more
liquidity ratiosliquidity refers to the ability of concern to meet its current obligations as and when these become due the short term obligations
current ratiomeaning this ratio establishes a relationship among current assets and current liabilitiesobjective the objective of computing these
quick ratiomeaning this ratio establishes a relationship among quick assets and current liabilitiesobjective the objective of commuting this ratio is
absolute liquid ratio - liquidity ratios although receivables debtors and bills receivable are usually more liquid than inventories yet there may be
explain solvency ratiosthe term solvency refers of the ability of a concern to meet its long term obligations the long term indebtedness of a firm
interpretation of equity ratioas equity ratio show the relationship of owner funds to total assets higher the ratio or the share of the shareholders
proprietary ratio equity ratio meaning the ratio measures a relationship among proprietors funds and the total assetsobjective the objective of
funded debt to total capitalization ratio the ratio establishes a link among the long term funds raised from outsider and total long term funds
debt equity ratiomeaning this ratio establishes a relationship among long term debts and share holders fundsobjective the objective of computing this
capital gearing ratio the term capital gearing is used to describe the relation ship between equity share capital including reserves and surplus
cash to debt service ratio cash to debt service ratio also known as debt cash flow coverage ratio is an improvement over the interest coverage
interest coverage ratio or debt service ratio meaning this ratio establishes a relationship among net profits before interest and taxes and
what is activity ratiofunds are invested in several assets in business to make sales and earn profits the efficiency with which assets are managed
capital turnover ratio meaning this ratio establishes a relationship among net sales and capital employedobjective the objective of computing this
fixed assets turnover ratiomeaning this ratio establishes a relationship among net sales and fixed assetsobjective the objective of computing this
state the working capital turnover ratio meaning this ratio establishes a relation ship among net sales and working capitalworking capital
stock turnover ratio meaning this ratio establishes a relation ship between costs of goods sold and average inventoryobjective the objective of
debtors turnover ratio or receivables turnover ratiomeaning this ratio establishes a relation ship between net credit sales and averages trade