Accounting For Managers - Ratio Analysis
Classification of Ratios
Financial ratios may be categorised in various ways.
Van horne has
divided financial ratios into four categories, viz., liquidity, debt,
profitability and coverage ratios. The first two types of ratios are computed
from the balance sheet. The last two are computed from the income statement and
sometimes, from both the statements. For the purpose of analysis, the present
lesson gives a detailed description of ratios, the formula used for their
computation and their significance. The ratios have been categorised under the
following headings:-
(i)
ratios for analysis of capital structure or
leverage.
(ii) ratios
for fixed assets analysis.
(iii) ratios
for analysis of turnover.
(iv) ratios
for analysis of liquidity position.
(v) ratios
for analysis of profitability.
(vi) ratios
for analysis of operational efficiency.
