## Sunday, June 22, 2008

### Ratio Analysis

Q:- What is meaning of ratio analysis ? What is the procedure of establishing the ratios ?

Ans. Definitions of Ratio and its analysis :-
It is an important technique for analyzing the financial statement . In this method we establish various ratios and give the results through interpretation .The relation in the ratio of items of f/s .
A ratio is simply a relationship of two items which are express in arithmetic number . It is arithmetical expression of relationship of one number to another .It may be indicated quotation of two mathematical expression .
According to Accountant hand books of wixen , kell and bed ford .
“ A ratio is an expression of the quantitative relationship between two numbers .”
“ A ratio is relationship of two out of item A to another item B . It is a simple fraction , integer or decimal or percentage .
In simple words ,” Ratio means one number expressed in terms of another and can be calculated by dividing one number into another .

Procedure

The following is the procedure for interpreting the result of financial analysis through ratio analysis .
1 Take the ratio to be calculate
2. Selection of item for the purpose of ratio from the financial statement
3. Calculation of Ratio
4. Comparison of calculated ratio
5. Interpretation of ratios 