Financial Ratios are used to create a fully integrated Financial Model. Pristine conducts trainings on Financial Modeling to teach concepts such as Financial Ratios. Click here to read more.

1. Financial ratio analysis
Ratios are a tool for expressing the relationship between various accounting data that can
be used for both internal and external comparisons. Financial Ratio analysis as a whole is
used for evaluating the financial condition and performance of a business.
Continuing with our example:
Suppose your chocolate business is now two years old, and you want to compare your
organizations performance with the competitors and also your past performance with the
current years. So you called your accountant and asked him the way to do so.
Your accountant suggests to you the ratio analysis and also narrates its advantages and
disadvantages of it.
Advantages of Financial Ratio Analysis
1. Helpful for forecasting the future earnings and cash flows.
2. Helpful in comparative analysis.
3. It helps in evaluating the financial position and operating efficiency of a business.
Disadvantages of Financial Ratio Analysis
1. Financial Ratios are only meaningful when compared to the historical performance or
externally to other firms.
2. Different firm follows different accounting principles which make comparisons among firm
meaningless.

2. Financial Ratios Templates to download
I have created a Financial Ratios template for you, where the subheadings are given and
you have to link the model to get the cash numbers! You candownload the same from
here. You can go through the case and fill in the yellow boxes. I also recommend that you
try to create this structure on your own (so that you get a hang of what information is to be
recorded).
Also you can download this filled template and check, if the information you
recorded, matches mine or not!