2. • SHREE SHIV CHHATRAPATI COLLEGE JUNNAR
• BACHELOR OF BUSINESS ADMINISTRATION
• CLASS:- TYBBA
• SEMESTER:- 5th
• SUBJECT:- ANALYSIS OF FINANCIAL STATEMENT
• PRESENTED BY:- RAVIRAJ DEVANAND CHALAK
• SUBJECT TEACHER:- DR.INAMDAR.T.B
3. IMPORTANCE/ADVANTAGES
OF RATIO ANALYSIS
Following are the advantages of ratio analysis:
1) Helpful in Financial Analysis: Ratio analysis helps
businesses in assessing their financial standing. It can be
used for short term as well as long term financial analysis.
Financial statements such as Profit & Loss Account and
Balance Sheet are used for this purpose.
4. • 2) For Explaining Financial Robustness: Various ratios
such as net profit ratio, debt equity ratio may be used for expressing
financial health of the business.
5. • 3) Useful for Locating Weak Areas: Ratio analysis can be used for
finding areas of weakness such as high ratio of expenses or increase in
debt and taking remedial measures.
6. • 5) Inter-Firm Comparison: Financial analysis facilitates
inter-firm comparison by bringing their performance to the same
scale.
7. • 6) Simplified Presentation of Accounting Figures:
Ratio analysis provides more meaningful figures by showing
relationship with different metrics. An absolute profit figure such as
74 lacs of profit does not say much until or unless it is put in relation
to total revenue. It offers information in a more comprehensive
manner.
8. • 7) Assessing Operating Efficiency: Ratio analysis not only
shows the financial standing of the business but also helps in
evaluating operating efficiency. Various ratios such as debtor turnover
or inventory turnover may be used for this purpose. These ratios help
in analysing different aspects of the business quickly and
accurately.This is done by calculating accounting ratios.
