Leverage ratios are also called long-term solvency ratios or capital structure ratios. The term 'solvency' implies the ability of a company to meet the payments associated with its long-term debts. Thus solvency ratios are the measure of the company's ability to meet its long-term obligations. Generally, leverage ratios are expressed in proportions. However, if the ratio is in fraction or less than one, it is expressed in percentage.The following are the major types of leverage ratios:1. Debt-equity Ratio2. Debt to total capital ratio1. Debt-Equity...
Sunday, 28 February 2010
Friday, 26 February 2010
Concept And Types Of Liquidity Ratios
Posted on 18:07 by Unknown
Liquidity represents one's ability to pay its current obligations or short-term debts within a period less than one year. Liquidity ratios, therefore, measures a company's liquidity position. The ratios are important from the viewpoint of its creditors as well as management. The liquidity position of the company can be measured mainly by using two liquidity ratios such as follows.a. Current Ratiob. Quick Ratioa. Current RatioCurrent ratio is also known as short-term solvency ratio or working capital ratio. Current ratio is used to assess the short-term...
Saturday, 20 February 2010
Classification Of Accounting Ratios
Posted on 17:49 by Unknown
Accounting ratios can be classified from different point of view. Ratios may be used to evaluate the company's liquidity, efficiency, leverage and profitability. The ratios may be classified as following.1. Liquidity Ratiosa. Current Ratiob. Quick Ratio2. Leverage Ratiosa. Debt-equity ratiob. Debt to total capital ratio3. Turnover Ratiosa. Inventory turnover ratiob. Debtors turnover ratioc. Average collection periodd. Total assets turnover ratioe. Fixed assets turnover ratiof. Capital employed turnover ratio4. Profitability Ratiosa. Profitability...
Wednesday, 17 February 2010
Nature Of Ratio Analysis
Posted on 03:05 by Unknown
In financial analysis, ratio is used as an index of yardstick for evaluating the financial position and performance of the firm. It is a technique of analysis and interpretation of financial statements. Ratio analysis helps in making decisions as it helps establishing relationship between various ratios and interpret thereon. Ratio analysis helps analysts to make quantitative judgement about the financial position and performance of the firm. Ratio analysis involves following steps:1. Relevant data selection from the financial statements related...
Tuesday, 16 February 2010
Importance And Advantages Of Ratio Analysis
Posted on 23:03 by Unknown
Ratio analysis is an important tool for analyzing the company's financial performance. The following are the important advantages of the accounting ratios.1. Analyzing Financial StatementsRatio analysis is an important technique of financial statement analysis. Accounting ratios are useful for understanding the financial position of the company. Different users such as investors, management. bankers and creditors use the ratio to analyze the financial situation of the company for their decision making purpose.2. Judging EfficiencyAccounting ratios...
Meaning Of Ratio Analysis And Presentation Of Ratio
Posted on 22:30 by Unknown
Meaning Of Ratio Analysis Financial statement analysis the process of analyzing financial statements of a company so as to obtain meaningful information about its survival, stability, profitability, solvency and growth prospect. The financial statement analysis can be performed by using a number of techniques such as comparative statements, common size statements and ratio analysis. Ratio analysis is the most popularly and widely used technique of financial statement analysis.In a simple word, ratio is a quotient of two numerical variables, which...
Monday, 8 February 2010
Parties Interested In Financial Statement Analysis
Posted on 03:31 by Unknown
The analysis of financial figures contained in the company's profit and loss account and balance sheet by employing appropriate technique is known a financial statement analysis. Financial statement analysis is useful to different parties to obtain the required information about the organization. Following are the parties interested in financial statement analysis.1. ShareholdersShareholders are interested in financial statement analysis to know the profitability of the organization. Profitability shows the growth potentiality of an organization...
Sunday, 7 February 2010
Limitations Of Financial Statement Analysis
Posted on 02:34 by Unknown
Although analysis of financial statement is essential to obtain relevant information for making several decisions and formulating corporate plans and policies, it should be carefully performed as it suffers from a number of the following limitations.1. Mislead the userThe accuracy of financial information largely depends on how accurately financial statements are prepared. If their preparation is wrong, the information obtained from their analysis will also be wrong which may mislead the user in making decisions.2. Not useful for planningSince...
Friday, 5 February 2010
Importance Of Financial Statement Analysis
Posted on 18:54 by Unknown
The financial statement analysis is important for different reasons:1. Holding Of ShareShareholders are the owners of the company. Time and again, they may have to take decisions whether they have to continue with the holdings of the company's share or sell them out. The financial statement analysis is important as it provides meaningful information to the shareholders in taking such decisions.2. Decisions And PlansThe management of the company is responsible for taking decisions and formulating plans and policies for the future. They, therefore,...
Methods Or Techniques Of Financial Statement Analysis
Posted on 18:35 by Unknown
Financial statement analysis can be performed by employing a number of methods or techniques. The following are the important methods or techniques of financial statement analysis.1. Ratio AnalysisRatio analysis is the analysis of the interrelationship between two financial figures.2. Cash Flow AnalysisCash flow analysis is the analysis of the change in the cash position during a period.3. Comparative Financial StatementsComparative financial statement is a analysis of financial statements of the company for two years or of the two companies of...
Objectives Of Financial Statement Analysis
Posted on 18:09 by Unknown
The major objectives of financial statement analysis are as follows1.Assessment Of Past PerformancePast performance is a good indicator of future performance. Investors or creditors are interested in the trend of past sales, cost of good sold, operating expenses, net income, cash flows and return on investment. These trends offer a means for judging management's past performance and are possible indicators of future performance.2.Assessment of current positionFinancial statement analysis shows the current position of the firm in terms of the types...
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