Meaning of Ratio
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| Meaning of Ratio |
A ratio is the relationship between one value and another. It is an expression of a mathematical relationship between one quantity and another. The ratio of 200 : 100 is 2 : 1 or 2. The Calculation of ratios an important technique for analysis and understanding profit and loss accounts and balance sheet. The elements that constitute the ratio express a meaningful relationship. For example, there is a relationship between sales and sundry debtors, between net profit and capital investment, and between current assets and current liabilities.
Meaning of Ratio Analysis
Ratio Analysis is most widely used technique for interpreting and
comparing financial reports. It analyses financial data from the firm’s Profit
and Loss Account and Balance Sheet. The figures appearing in the Profit and
Loss Account and Balance Sheet convey of considerable amount of information in
terms of absolute amounts. But the relationship between one figures and another
can be more useful. Accounting ratio show relationship among item in financial
statements. These are used in the assessment of profitability, liquidity,
activity and the capital structure of the enterprise.
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