Home » Accounting Ratios Analysis/Financial Ratios Analysis

# Accounting Ratios Analysis/Financial Ratios Analysis:

## Learning Objectives:

After studying this topic you should be able to:

 Define, explain, calculate and interpret the various accounting ratios. Explain the significance and usefulness of different ratios Explain the limitations of using ratios analysis

## Contents:

There are many special measurements that may be developed from financial statements and supplementary financial data. Such measurements may be divided into:
• Those that analyze balance sheet position, and
• Those that analyze operating results.

Some of these measurements have special significance to particular groups, while others may be of general interest to all groups. Creditors, for example, are concerned with the ability of a company to pay its current obligations and seek information about the relationship of current assets to current liabilities. Shareholders are concerned with dividends and seek information relating the earnings per share that will form the basis for dividend declarations. Management is concerned with the liquidity of stock of goods and seek information relating to the number of times stock have turned over during the period. All parties are vitally interested in the profitability of operations and wish to be informed about the relationship of earnings to both creditors and shareholders.

A number of measurements developed from financial statements will be explained effectively through using accounting ratios. It is fact that ratio analysis is one of the tools of the financial analysis. It is used to diagnose the financial health of an enterprise.

 Meanings, Nature and Usefulness of Ratios Analysis Interpretation of Ratios Important Factors for Understanding Ratios Analysis Significance and Usefulness Ratios Analysis Classification of Ratios Analysis of Short Term Financial Position or Test of Liquidity Current Ratio Quick/Acid Test/Liquid Ratio Absolute Liquid Ratio Inventory/Stock Turnover Ratio Debtors / Receivable Turnover Ratio Creditors / Payables Turnover Ratio Working Capital Turnover Ratio Profitability Ratios Gross Profit Ratio (GP Ratio) Operating Profit Ratio Net profit ratio (NP ratio) Earnings Per Share Ratios Operating ratio Expense ratio Solvency ratios - Test of Long Term Solvency Debt-equity Ratio Debt Service Ratio or Interest Coverage Ratio Fixed Assets Ratio Debts to Total Funds or Solvency Ratio Reserves to Capital Ratio Capital Gearing Ratio Proprietary Ratio Accounting Ratios Formulas Limitations of Ratios Analysis

A D V E R T I S E M E N T

 Financial Accounting Topics Introduction to Accounting ---------------------------------------------------------------------------- Transactions and Accounting Equation ---------------------------------------------------------------------------- Analysis of Business Transactions ---------------------------------------------------------------------------- Journal, Ledger and Trial Balance ---------------------------------------------------------------------------- Accounting for Bills of Exchange ---------------------------------------------------------------------------- Special Journals ---------------------------------------------------------------------------- Cash Book ---------------------------------------------------------------------------- Bank Reconciliation Statement ---------------------------------------------------------------------------- Final Accounts ---------------------------------------------------------------------------- Work Sheet ---------------------------------------------------------------------------- Capital and Revenue Items ---------------------------------------------------------------------------- Valuation of Inventories ---------------------------------------------------------------------------- Accounts of Non-profit Making Organizations ---------------------------------------------------------------------------- Statement of Cash Flows ---------------------------------------------------------------------------- Accounting Ratios Analysis ---------------------------------------------------------------------------- Depreciation, Provisions and Reserves ---------------------------------------------------------------------------- Accounting Dictionary ---------------------------------------------------------------------------- Financial Calculators

 Managerial Accounting Topics Financial Statements ---------------------------------------------------------------------------- Cost Volume Profit Relationship ---------------------------------------------------------------------------- Variable Costing System ---------------------------------------------------------------------------- Materials and Inventory Cost Control ---------------------------------------------------------------------------- Activity Based Costing System ---------------------------------------------------------------------------- Standard Costing and Variance Analysis ---------------------------------------------------------------------------- Balanced Scorecard ---------------------------------------------------------------------------- Capital Investment Analysis/Capital Budgeting

A D V E R T I S E M E N T