Student tips (BBS 2nd year, Finance) Importance of Ratio analysis Ratio analysis is important and useful technique to check upon the efficiency of an organization and management team can arrive an important decisions by using ratio analysis 1. With the help of ratio analysis, the evaluation of changes during different period can be performed. In this way, the comparative efficiency of company can be informed. 2. Ratios are useful tools for evaluating the liquidity and solvency position of a concern. They point out the liquidity position of an organization to meet its short term and long term obligations. 3. Ratio analysis is very helpful in financial forecasting and planning and for decision making since ratio calculations of past years works as a guideline for the future. 4. Analysis of ratios also points out the inefficiency of the business that the firm is suffering from and corrective steps may be taken accordingly. 5. Ratios are an effective means of communication. Different financial ratios communicate the strength and financial standing of the firm to the internal and external parties. 6. Ratio analysis helps to get sign of progress or weakness in the firm in comparison to various companies in the same industry. An industry is a group of different corporations with having same business nature.
Posted on: Sat, 22 Jun 2013 08:05:33 +0000