1. Ratio-analysis means the process of
computing, determining and presenting the
relationship of related items and groups of
items of the financial statements. They
provide in a summarized and concise form of
fairly good idea about the financial position
of a unit. They are important tools for
financial analysis.
2. It
is an analysis of strength
and weakness of an
organisation by establishing
the quantitative relation
among the items of Balance
Sheet or Income Statement of
such an organisation
3.
Analysis of financial Position
Simplification of Accounting Figures
Assessment of Operational Efficiency
Determining Trends in the long-run
Identification of Strength & Weakness
Taking Remedial Measures
Comparison of Performance
4.
Based on Historical Data
No Standard Interpretation
Ignoring Qualitative Aspects
Difference in Accounting Methods make
comparison difficult
6. LIABILITIES
ASSETS
NET WORTH/EQUITY/OWNED FUNDS
Share Capital/Partner’s Capital/Paid up
Capital/ Owners Funds
Reserves ( General, Capital, Revaluation &
Other Reserves)
Credit Balance in P&L A/c
FIXED ASSETS : LAND & BUILDING, PLANT &
MACHINERIES
Original Value Less Depreciation
Net Value or Book Value or Written down
value
LONG TERM LIABILITIES/BORROWED FUNDS
: Term Loans (Banks & Institutions)
Debentures/Bonds,
Unsecured
Loans,
Fixed
Deposits,
Other
Long
Term
Liabilities
NON CURRENT ASSETS
Investments in quoted shares & securities
Old stocks or old/disputed book debts
Long Term Security Deposits
Other Misc. assets which are not current or
fixed in nature
CURRENT LIABILTIES
Bank Working
Capital Limits such as
/Bills/Export Credit
Sundry /Trade Creditors/Creditors/Bills
Payable, Short duration loans or deposits
Expenses payable & provisions against
various items
CURRENT ASSETS : Cash & Bank Balance,
Marketable/quoted
Govt.
or
other
securities, Book Debts/Sundry Debtors,
Bills Receivables, Stocks & inventory
(RM,SIP,FG) Stores & Spares, Advance
Payment of Taxes, Prepaid expenses,
Loans and Advances recoverable within 12
months
INTANGIBLE ASSETS
Patent, Goodwill, Debit balance in P&L A/c,
Preliminary or Preoperative expenses
7.
Liquidity Ratios Used to study the ability of
the organisation in meeting short-term
payments or obligations
Includes:
1) Current Ratio,
2) Acid Test Ratio.
8.
Relation between current assets and current
liabilities
Long Term Sources Financing the Current
assets give a stable base for the liquidity of
the organisation
Normally , the ratio should not be less than 2
i.e., the current assets should be double the
size of current liabilities
9.
10.
It is the ratio between quick assets and quick
liabilities
Quick assets include current assets except
inventory and pre-paid expenses
Quick liabilities include current liabilities
other than bank overdraft
A 1:1 ratio is healthy indicator of cash
management
11.
12. It is the ratio between cash and current
liabilities
Means Availability of cash for meeting current
liabilities.
Cash Ratio= Cash in hand + cash at bank
Current Liabilities
13.
These ratio shows short term financial
soundness of the company.
The Financial position is supposed to very
sound, if the current ratio is more than 2:1.
Higher ratio shows the better capacity of the
business to meet its current obligation.