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INTERPRETATION OF ACCOUNTS RATIO ANALYSIS Introduction ratio analysis is a method traditionally used by people who wish to understand more fully the nancial statements and performance of an entity. A ratio is statistical yardstick by means of which relationships between two or various figures can be compared or measured. Bank loan officers and bond rating analysts analyze ratios to ascertain a companys ability to pay its debts. Interpretation of financial ratios and their significance. Business risk operating analysis ratios 5. Khan and Jain define the term ratio analysis as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial conditions can be determined 13 Procedure for computation of ratios Generally ratio analysis involves four steps. Suppose you have 200 apples and 100 oranges. 111 Use and significance of ratio analysis- The ratio is one of the most powerful tools of financial analysis. Solvency ratio Solvency 6. Ratios show how one number is related to another.
Because bigger number indicates that the company has more current assets for every rupee of its current liability.
Current ratio Liquidity 7. I Collection of relevant accounting data from financial. OBJECTIVES To understand analyze and interpret the basic concepts of financial statements of different mining companies. Financial risk leverage analysis ratios The following section provides a summary of the five categories of financial ratios along with descriptions of how each ratio is calculated and its relevance to financial analysis. Ratios simply means one number expressed in term of another. Suppose you have 200 apples and 100 oranges.
This number is lower than previous years but higher than industry averages. Interpretation requires analysis while analysis is useless without interpretation. The ratio of apples to oranges is 200 100 which we can more conveniently express as 21 or 2. Interpretation of financial ratios and their significance. The term interpretation means explaining the meaning and significance of the data so simplified. Ratio analysis is a technique which involves regrouping of data by application of arithmetical relationships. Because bigger number indicates that the company has more current assets for every rupee of its current liability. OBJECTIVES To understand analyze and interpret the basic concepts of financial statements of different mining companies. 2 Interpretation Here the results of analysis are used to judge a business performanceThis is done by making comparisons a with other similar businesses usually within the same year eg. A ratio is statistical yardstick by means of which relationships between two or various figures can be compared or measured.
52 Objectives of Ratio Analysis Ratio analysis is indispensable part of interpretation of results revealed by the financial statements. 111 Use and significance of ratio analysis- The ratio is one of the most powerful tools of financial analysis. The following ratios are of importance in Grade 12 No. A ratio is statistical yardstick by means of which relationships between two or various figures can be compared or measured. Ratios show how one number is related to another. Current ratio Liquidity 7. This is what is checked in the following ratio analysis. Ratio Analysis enables the business ownermanager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. Solvency ratio Solvency 6. Suppose you have 200 apples and 100 oranges.
Financial analysis helps managers with effi ciency analy-. Khan and Jain define the term ratio analysis as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial conditions can be determined 13 Procedure for computation of ratios Generally ratio analysis involves four steps. OBJECTIVES To understand analyze and interpret the basic concepts of financial statements of different mining companies. Because bigger number indicates that the company has more current assets for every rupee of its current liability. 2 Interpretation Here the results of analysis are used to judge a business performanceThis is done by making comparisons a with other similar businesses usually within the same year eg. 52 Objectives of Ratio Analysis Ratio analysis is indispensable part of interpretation of results revealed by the financial statements. Ratios that provide insight about what the market for shares and bonds believes about future prospects of the fi rm. Was the gross profit to sales percentage last year better or worse. Current ratio is a ratio between companys current assets and current liability. Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time and provide key indicators of organizational performance.
Ratio Analysis enables the business ownermanager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. The bigger is the ratio the better. This number is lower than previous years but higher than industry averages. Net income before tax on turnover Profitability 4. RATIO ANALYSIS AND INTERPRETATION 4 assets were 1250000 see Appendix. It provides users with crucial financial information and points out the areas which require investigation. The term interpretation means explaining the meaning and significance of the data so simplified. Ratio Analysis and the Interpretation of Financial Statements Objective of Ratio Analysis Use key ratios to analyse the performance of the. Current ratio Liquidity 7. A ratio is a mathematical relation between one quantity and another.
Current ratio Liquidity 7. RATIO ANALYSIS AND INTERPRETATION 4 assets were 1250000 see Appendix. Bank loan officers and bond rating analysts analyze ratios to ascertain a companys ability to pay its debts. Current ratio is a ratio between companys current assets and current liability. The debt ratio for The Vanguard Group comes to 53 as the liabilities were 666250 and total OPTION 1. It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. Was the gross profit to sales percentage last year better or worse. In view of the needs of various uses of ratios the ratios which can be calculated from the. Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can be formed. The term interpretation means explaining the meaning and significance of the data so simplified.
