What type of analyses can be done by using financial ratios Solution Financial Ratios are helpful in internal as well as external analysis. Internal Analysis like comparison of various items of Balance Sheet, Profit and Loss Account, Cash Flow statement can be done through Ratio analysis. Ratios are helpful in drawing meaningful conclusion between different items and understanding of relationship between different items. Like current Ratio shows relationship between Current assets and current liabilities and used as a measure to check Solvency condition of the company. Apart from this ratios can be used to compare results between different periods, which again helpful in comparing results of different years and thus helps to trace deviations in performance from one year to other. External comparison of a firm with other firms of the industry can be done through ratio analysis and thus helps in comparing the sales, profitability, understanding the capital structure of a company. So, internally, Gross profit analysis, cash collection analysis, payable payment analysis, Assets to sales ratio analysis, Earning Per Share analysis, current assets and current liabilities analysis can be done through Financial ratio analysis. Externally, Profitability analysis, liqudity analysis, solvency analysis can be done through ratio anaylsis by comparing ratios of different firms. .

1. What type of analyses can be done by using financial ratios
Solution
Financial Ratios are helpful in internal as well as external analysis. Internal Analysis like
comparison of various items of Balance Sheet, Profit and Loss Account, Cash Flow statement
can be done through Ratio analysis. Ratios are helpful in drawing meaningful conclusion
between different items and understanding of relationship between different items. Like current
Ratio shows relationship between Current assets and current liabilities and used as a measure to
check Solvency condition of the company. Apart from this ratios can be used to compare results
between different periods, which again helpful in comparing results of different years and thus
helps to trace deviations in performance from one year to other.
External comparison of a firm with other firms of the industry can be done through ratio analysis
and thus helps in comparing the sales, profitability, understanding the capital structure of a
company.
So, internally, Gross profit analysis, cash collection analysis, payable payment analysis, Assets
to sales ratio analysis, Earning Per Share analysis, current assets and current liabilities analysis
can be done through Financial ratio analysis. Externally, Profitability analysis, liqudity analysis,
solvency analysis can be done through ratio anaylsis by comparing ratios of different firms.