Indian Financial Ratio Analysis

The Indian financial system comprises of four segments or components. These are financial institutions, financial markets, financial instruments and financial services. Banks come under the financial institutions segment. Financial institutions are intermediaries that mobilize savings and facilitate allocation of funds in an efficient manner. The Indian financial system was quite well developed even prior to India’s political Independence in August 1947. Both foreign and domestic banks were present and so was a well-developed stock market.

Since India attained independence, there has been a continuous effort on the part of the government to develop and stabilize the banking operations with a view to accelerating the pace of socio-economic

MEANING OF RATIO

A ratio in one figure express in terms of another figure .It is a mathematical yardstick that measures the relationship of two figures, which are related to each other and mutually interdependent.

Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers .It can be expressed as a fraction or decimal or pure ratio or in absolute figures as “ so many times”.AS accounting ratio is an expressing relating two figures or accounts or two sets of account heads or group contain in the financial statements.

MEANING OF RATIO ANANLYSIS

Ratio analysis is the method or process by which the relationship of items of group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis .There are several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the purpose and the objective of

2) LONG-TERM SOLVENCY

Ratio analysis is equally useful for accessing the long term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long term creditors, security analyst & the present & potential owners of a business. The long term solvency is measured by the leverage /capital structure & profitability ratio. Ratio analysis is that focus on earning power & operating efficiency.

Ratio analysis reveals the strength & weakness of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved.

3) OVERALL PROFITABILITY

Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered