# What is Ratio Analysis explain types?

## What is Ratio Analysis explain types?

Ratio Analysis is done to analyze the Company’s financial and trend of the company’s results over years where there are mainly five broad categories of ratios like liquidity ratios, solvency ratios, profitability ratios, efficiency ratio, coverage ratio which indicates the company’s performance and various examples of …

## What is ratio analysis and its importance?

Ratio Analysis: Meaning Ratio Analysis is a method to understand the liquidity position, efficiency of operations, profitability position, and solvency of a business organization. It is a quantitative technique that uses an organization’s financial statements, such as the income statement and the balance sheet.

**What is Ratio Analysis example?**

For example. the debt to assets ratio for 2010 is: Total Liabilities/Total Assets = $1074/3373 = 31.8% – This means that 31.8% of the firm’s assets are financed with debt. In 2011, the debt ratio is 27.8%.

### What are the features of ratio analysis?

The following are the principal advantages of ratio analysis:

- Forecasting and Planning:
- Budgeting:
- Measurement of Operating Efficiency:
- Communication:
- Control of Performance and Cost:
- Inter-firm Comparison:
- Indication of Liquidity Position:
- Indication of Long-term Solvency Position:

### What is ratio analysis and its features?

Ratio analysis is a quantitative analysis of data enclosed in an enterprise’s financial statements. It is used to assess multiple perspectives of an enterprise’s working and financial performance such as its liquidity, turnover, solvency and profitability.

**What are the main objectives of ratio analysis?**

Objectives of Ratio Analysis are: Whereas, Long-term solvency is the ability of the enterprise to pay its long-term liabilities of the business. Assess the operating efficiency of the business. Analyze the profitability of the business. Help in comparative analysis, i.e. inter-firm and intra-firm comparisons.

## How do you do ratio analysis?

The four key financial ratios used to analyse profitability are:

- Net profit margin = net income divided by sales.
- Return on total assets = net income divided by assets.
- Basic earning power = EBIT divided by total assets.
- Return on equity = net income divided by common equity.

## What is ratio analysis in easy language?

Definition: Ratio analysis is the process of examining and comparing financial information by calculating meaningful financial statement figure percentages instead of comparing line items from each financial statement.

**What are the 5 major categories of ratios?**

The following five (5) major financial ratio categories are included in this list.

- Liquidity Ratios.
- Activity Ratios.
- Debt Ratios.
- Profitability Ratios.
- Market Ratios.

### What is the main objective of ratio analysis?

Objectives of Ratio Analysis are: Determine liquidity or Short-term solvency and Long-term solvency. Short-term solvency is the ability of the enterprise to meet its short-term financial obligations. Whereas, Long-term solvency is the ability of the enterprise to pay its long-term liabilities of the business.