By Dheeraj Vaidya Comments. Financial Statement Analysis. Download these solved and unsolved Colgate Excel Template. Concept Colgate Case Studies.
Ratio Analysis – Ratios Formulae
Ratio Analysis: Meaning, Classification and Limitation of Ratio Analysis
The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. Current assets like cash, cash equivalents, and marketable securities can easily be converted into cash in the short term. This means that companies with larger amounts of current assets will more easily be able to pay off current liabilities when they become due without having to sell off long-term, revenue generating assets. The current ratio is calculated by dividing current assets by current liabilities.
Ratio Analysis – Introduction
By Sharmila Reddy Leave a Comment. Financial Statement Analysis. Ratio Analysis is a mathematical tool used to evaluate the financial position of a company and compare the outcome with the previous year figures and also analyze the performance of the company as compared to its peers. There are primarily 5 types of ratio analysis — profitability ratios , solvency ratios , liquidity ratios , turnover ratios and earning ratios. There are different types of ratios analysis that have been calculated by every company to evaluate business performance.
Calculating the ratios is relatively easy; understanding and interpreting what they say about a company's financial status takes a bit more work. Ratios serve as a comparative tool of analysis for liquidity , profitability , debt , and asset management , among other categories—all useful areas of financial statement analysis. Analysts compare the ratios for a given firm to the ratios of other firms in the same industry and against previous quarters or years of historical data for the firm itself. Performing an accurate financial ratio analysis and comparison helps companies gain insight into their financial position so that they can make necessary financial adjustments to enhance their financial performance.