Essay On The Importance Of Ratio Analysis

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The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of the firm ratio analysis is relevant in assessing the performance of a firm in respect of the following points.
1. Liquidity positions:
With the help of ratio analysis conclusions can be drawn regarding the liquidity position of the firms. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due the liquidity ratios are particularly useful in credit analysis by banks and other supplier of short–term loans.
2. Long-term solvency:
Ratio analysis is equally useful for assessing the long term financial viability of the
firm
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MBA PROGRAMME
STMWEC Page 31
IMPORTANCE OF RATIO ANALYSIS
The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of the firm ratio analysis is relevant in assessing the performance of a firm in respect of the following points.
1. Liquidity positions:
With the help of ratio analysis conclusions can be drawn regarding the liquidity position of the firms. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due the liquidity ratios are particularly useful in credit analysis by banks and other supplier of short–term loans.
2. Long-term solvency:
Ratio analysis is equally useful for assessing the long term financial viability of the firm the long term solvency is measured by the leverage / capital structure and profitability ratios, which focus on earnings power and operating efficiency ratio analysis, reveals the strength and weakness of a firm in this respect.
3. Operating efficiency:
It is relevant from the viewpoint of management and it throws light on the degree

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