Ratio Analysis

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 the numericals or quantitatve relationship between the two items or variables.  This relationship can be expressed as percentages fraction and proportion of numbers.

Meaning

Ratio Analysis is the process of identifying the financial strength and weakness of the firm by properly establishing relationship between the items of the balance sheet and profit and loss account.

In other words Ratio Analysis is one of the techniques of financial analysis where ratios are used as yardsticks for evaluating the financial condition and performance of a firm.