Question:
What is meant by Ratio Analysis?
What is meant by Ratio Analysis?
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Ratio analysis helps investors, creditors, and managers assess the financial health of a company.
Updated On: Sep 1, 2025
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Solution and Explanation
Step 1: Definition of ratio analysis.
Ratio analysis is a technique used to evaluate the financial performance of a company by comparing different financial variables. It helps to understand the financial health of a company and identify trends over time.
Step 2: Types of ratios.
1. **Liquidity Ratios:** Measure a company’s ability to meet short-term obligations.
2. **Profitability Ratios:** Measure the company’s ability to generate profit.
3. **Solvency Ratios:** Measure the company’s ability to meet long-term obligations.
Step 3: Conclusion.
Thus, ratio analysis involves evaluating the company’s financial performance through various ratios that reflect different aspects of its financial health. Final Answer: \[ \boxed{\text{Ratio analysis involves evaluating financial performance using financial ratios.}} \]
Ratio analysis is a technique used to evaluate the financial performance of a company by comparing different financial variables. It helps to understand the financial health of a company and identify trends over time.
Step 2: Types of ratios.
1. **Liquidity Ratios:** Measure a company’s ability to meet short-term obligations.
2. **Profitability Ratios:** Measure the company’s ability to generate profit.
3. **Solvency Ratios:** Measure the company’s ability to meet long-term obligations.
Step 3: Conclusion.
Thus, ratio analysis involves evaluating the company’s financial performance through various ratios that reflect different aspects of its financial health. Final Answer: \[ \boxed{\text{Ratio analysis involves evaluating financial performance using financial ratios.}} \]
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