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Activity Ratio Analysis Activity Ratio Analysis: Activity ratios are financial analysis tools used to measure a business’ ability to convert its assets into cash. These ratios are known as turnover ratios because they indicate the rapidity with which the resources available to the concern are being used to produce revenue from operations. The different types of … Read more

Solvency Ratio Analysis Solvency Ratio Analysis: It measures the ability of a business to survive for a long period of time. These ratios are very important for stockholders and creditors as these ratios assess the ability of the firm to meet its long-term liabilities. The solvency ratios are categorized into the following types : a) … Read more

Liquidity means the firm’s ability to meet its current liabilities. In other words, the ability of a business to pay its short-term debts is frequently referred to as the liquidity position of the business. Short-term creditors of the firm are generally interested to know about the liquidity position of the firm. The liquidity ratio is … Read more

Classification of Ratios Accounting ratios are used to analyze the financial position of the firm. They are being categorized into two different types which are given as below: A) Traditional classification – The ratios of this type are based on the financial statements. Balance Sheet Ratios – When both figures are used to calculate a … Read more

Ratio Analysis is carried out on complex financial statements to convert them into simpler and summarised forms. As a matter of fact, the weakness in the original financial statements would also be reflected in the analysis derived from ratios. So, ratio analysis is prone to double limitations – Inherent limitation of financial statements, and Limitation … Read more

Ratio Analysis is one of the indispensable tools used to interpret the financial statements of a company. It yields such results which help in easy understanding of the company’s overall performance. If the process of computing ratios is carried out properly, it can highlight the areas where the performance of the company is lacking as … Read more

What is Ratio Analysis? Ratio Analysis – Ratios are a mathematical tool that helps in defining the relationship between two figures. The analysis and interpretation of financial statements are carried out with the help of Ratio Analysis. The primary objective of ratio analysis is to help in understanding the performance of a company. Ratios reflect … Read more

Limitations of Financial Analysis While financial analysis assists in deciding the Financial strengths and weaknesses of a company, its correctness depends on the quality and extent of information available in financial statements.  The limitations of the financial statements result in Limitations of financial analysis. An analyst, who makes the analysis of financial statements must possess … Read more

Comparative Balance Sheet A comparative balance sheet presents side-by-side information about an entity’s assets, liabilities, and shareholder’s equity as of multiple points in time. It shows increases and decreases in the various assets, liabilities, and capital. A comparative balance sheet usually has two columns of amounts that appear to the right of the descriptions. The … Read more