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Accounting For Managers - Ratio Analysis

Ratio Analysis - Introducation

   Posted On :  26.01.2018 08:40 am

Financial statements by themselves do not give the required information both for internal management and for outsiders. They are passive statements showing the results of the business i.e. Profit or loss and the financial position of the business. They will not disclose any reasons for dismal performance of the business if it is so. What is wrong with the business, where it went wrong, why it went wrong, etc. Are some of the questions for which no answers will be available in the financial statements.

Introduction 

 Similarly, no information will be available in the financial statements about the financial strengths and weaknesses of the concern. Hence, to get meaningful information from the financial statements which would facilitate vital decisions to be taken, financial statements must be analysed and interpreted. Through the analysis and interpretation of financial statements full diagnosis of the profitability and financial soundness of the business is made possible. The term `analysis of financial statements’ means methodical classification of the data given in the financial statements. The term `interpretation of financial statements’ means explaining the meaning and significance of the data so classified. A number of tools are available for the purpose of analysing and interpreting the financial statements. This lesson discusses in brief tools like common size statement, trend analysis, etc., and gives a detailed discussion on ratio analysis.

 

Learning Objectives

  

ՖՖ   After reading this lesson the reader should be able to:

 

ՖՖ   understand the nature and types of financial analysis

 

ՖՖ   know the various tools of financial analysis

 

ՖՖ   understand the meaning of ratio analysis

 

ՖՖ   ppreciate the significance of ratio analysis

 

ՖՖ   understand the calculation of various kinds of ratios

 

ՖՖ   calculate the different ratios from the given financial statements

 

ՖՖ  interpret the calculated ratios

 

2.2.3 Contents

Nature Of Financial Analysis

 

Types Of Financial Analysis

 

Tools Of Financial Analysis

 

Meaning And Nature Of Ratio Analysis

 

Classification Of Ratios

 

Capital Structure Or Leverage Ratios

 

Fixed Assets Analysis

 

Analysis Of Turnover (Or) Analysis Of Efficiency

 

Analysis Of Liquidity Position

 

Analysis Of Profitability

 

Analysis Of Operational Efficiency

 

Ratios From Share Holders’ Point Of View

 

Illustrations

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