What is ratio analsis and the types of ratio analysis?
A tool used by individuals to conduct a quantitative analysis of information in a company’s financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis. Ratios are also classified differently on different bases. The mostly used one is the financial classification under which the ratios are broadly divided into the following five classes: • Liquidity ratios concerned with the short term solvency of the concern or its ability to meet financial obligation on their due dates. • Activity ratios concerning efficiency of management of various assets by the concern. • Leverage ratios concerning stake of the owners in the business in relation to outside borrowings or long term solvency. • Coverage ratios concerned with the ability of the company to meet fixed commitments such as i
