It gives you an idea of how well the company can meet its obligations in the next 12 months. It is also used to identify the positives or strengths of a firm.

The first of these indicates the number of times inventory is replaced during the year of how quickly the goods are sold. The cash ratio will tell you the amount of cash a company has compared to its total assets. Liquidity ratios measure a companys ability to pay off its short-term debts as they become due. Ratio analysis is broadly classified into four types.

**Ratio analysis and its types**.

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Depending upon the type of asset activity ratios may be i inventory stock turnover ii receivable debtors turnover and iii total assets turnover. Examples of Ratio Analysis Categories 1. Ratio analysis consists of calculating financial performance using five basic types of ratios. Ratio analysis consists of calculating financial performance using five basic types of ratios.

Ratio analysis is used to identify various problems with a firm such as its liquidity efficiency of operations and profitability. Ratio analysis is an age old technique of financial analysis. Ratio analysis is the process of determining and presenting in arithmetical terms the relationship between figures and groups of figures drawn from these statements.

Profitability liquidity activity debt and market. Profitability liquidity activity debt and market. The following points highlight the five main types of ratio analysis.

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The current ratio is current assets divided by current liabilities. Ratio analysis Is a method or process by which the relationship of items or groups of items in the financial statements are computed and presented. Profitability ratios are of utmost importance for a concern. This ratio analysis type speaks about the returns that the company generates for its shareholders and investors.

Liquidity ratios are helpful in determining the ability of the company to meet its debt obligations. Liquidity ratios measure the short term solvency of the firm. Current and Quick Ratios expose the assessment between Current Assets and Current Liabilities suggest for required decision making.

The ratio analysis involves two types of comparison for a useful interpretation of the financial statements. A ratio itself does not indicate favourable or unfavorable position. This method helps accountants understand the pace at.

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It has mainly two types of ratio under this. The Profitability Ratios like Gross Profit Ratio Net Profit Ratio and Operating Ratio give a. Current ratio which let us know the short term solvency of a firm. Accounting ratios are designed to show how one number is related to another and the meaning of such relationships.

These ratios include current quick cash and operating cash flow. Read more Analysis type is primarily sub. The following groups of ratios are considered in this article which are as follows.

It is a test of efficiency inventory management. In such a situation firms should consider investing excess capital into middle and long term objectives. Liquidity ratios activity ratios solvency ratios profitability ratios and leverage ratio.

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Also called financial leverage ratios solvency ratios compare a. Liquidity ratios Leverage ratios Profitability ratios Activity ratios Liquidity Ratios The importance of liquidity lies in the fact that it helps in evaluating the ability of the firm to meet its short term obligations. Ratio analysis is the comparison of line items in the financial statements of a business. A high PE ratio is a positive sign for the company since it gets a high valuation in the market.

Liquidity Ratio facilitates to identify whether the company has enough capability to meet short term requirements. Solvency Ratios Liquidity Ratios To help identify the short term liquidity of a firm this ratio is used. Solvency ratios are used for determining the viability of.

Four Types of Ratio Analysis are. The information provided by the financial statements in absolute form is historical and static conveying very little meaning to the users. Different Kinds of Ratio Analysis.

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You have already learnt the meaning computations and significance of liquidity and activity ratios. These ratios measure the firms ability to satisfy its long-term obligations and are closely tracked by investors to understand and appreciate the ability of the business to meet its long-term liabilities and help them in decision making for long-term investment of their funds in the business. Earning ratio can be divided into three categories- PE RATIO This ratio represents the earnings multiple of the company. Moreover the fundamental types of ratio analysis include the following Activity Ratio Analysis Activity ratio analysis implies the assessment of a companys efficiency and scale of operations.

Ratio Analysis and Its Types – Free download as Powerpoint Presentation ppt PDF File pdf Text File txt or view presentation slides online. Types of Ratio in Ratio Analysis You have learnt in the previous lesson that accounting ratios can be classified into five major groups viz. Learning Objectives Classify a financial ratio based on what it measures in a company Key Takeaways Key Points.