Archive | Finance & Cost Accounting

Ratio Analysis   Ratio Analysis is a widely used tool of financial analysis.  It is defined as the systematic user of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as it is historical performance and current financial conditions can be determined.  The term ratio refers to [...]

Importance of Ratio Analysis   The importance of Ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inference regarding the performance of a firm.  Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects:   1. Liquidity Portion: [...]

Trend Analysis   The financial portion of a firm is improving or deteriorating over the years.  This is made possible by the use of trend analysis.  The significance of a trend analysis of ratios lies in the fat that the analyst can know the direction of movement i.e., whether the movement is favorable or un-favorable [...]

The impotence of adequate liquidity in the sense of the ability of the firm to meet current or short term obligations when  they become due for payment can hardly be over stressed.  The short term creditors of the firm are interested in the short term solvency or liquidity of a firm.   The liquidity ratios [...]

LEVERAGE RATIOS   Leverage ratios refers to the use of debt finance.  The long term solvency of a firm can be examined by using the leverage ratio’s and these ratios helps in assessing the risk arising from the sue of debt capital (creditors owners and management).   The principal leverage ratios are   Debt Equity [...]

Net Profit ratio   Net Profit Ratio means final balance of operating and non operating incomes after meeting all expenses i.e., both operating or non operating.  This ratio helps in determining the efficiency with which affairs of the business are being managed.  The ratio is an effective measures to check the profitability of the company. [...]

Gross Profit Ratio is the profit that a concern earns on its trading or it is the excess of the net sales over the cost of goods sold. In other words this is the ratio of gross profit to net sales and expressed as a percentage. It also helps in ascertaining whether the average percentage [...]

Return on Equity Ratio   This ratio throw light on the performance and strength of the firm and reveals how profitability. The owners fund have been utilised by the firm. It also gives the shareholders an idea of the return on their funds. Profitability is measured by dividing the net profit after tax (but before [...]

Fund-flow analysis   Fund-flow analysis becomes an important tool in the analytical kit of financial managers.  It reveals the changes in working capital position.  It tells about the source from which the working capital was obtained and in the open changes which have taken place behind the balance sheet.  

Trend Percentage: Trend percentages are useful analytical device for the management.  Since by substitution of percentages for large amounts the brevity and read ability are achieved and it is immensely helpful in walking a comparative study of the financial statement for several years.  However trend percentages are calculated only for major items.  Since the purpose [...]