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Accounting For Managers - Ratio Analysis

Classification of Ratios

   Posted On :  26.01.2018 08:50 am

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.


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