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Ratio Analysis In Financial Performance

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EXECUTIVE SUMMARY
The ratio analysis is a quantitative tool to analyze the financial statement of the organization. The ratios are widely used tool to know the performance of the company; each and every ratio is finally end up with the meaning full information related to the financial position of the organization. The ratios are also help to the financial analyst to interpret the financial statement to know the strength and weakness of the organization as well as historical performance and current financial condition can be determined along with the liquidity position of the company.
I have also emphasized more on need and importance of ratio analysis. Ratio analysis has been carried out using financial information for past 5 years. i.e. from …show more content…

Thus the financial statements will provide a summarized view of the firm. There is need of applying certain tools for assessing accurately the financial health of a firm. Ratio analysis is the powerful tool applied measuring financial soundness and performance of a firm. Ratio analysis is one of the powerful techniques which are widely used for interpreting financial statements. This technique serves as a tool for assessing the financial soundness of the business. It can be used to compare the risk and return relationship of firms of different sizes. The term ration refers to the numerical or quantitative relationship between two items/variables.
MEANING
The term ‘ratio’ refers to “One number expressed in terms of another”. Ratio is a mathematical expression of the relationship between two or more related …show more content…

(2) Working Capital Turnover Ratio This ratio shows whether working capital has been efficiently used in making sales. High ratio indicates higher operating efficiency of a firm and vice-versa. It is calculated as follows : Net Sales
Working Capital Turnover Ratio = ------------------------- Working Capital Here,
Net Sales = Sales – Return
Working Capital = Current Assets – Current Liabilities.

(4) Stock Turnover ratio This ratio is also known as Inventory Turnover ratio. The ratio indicates whether Investment in inventory is efficiency used or not. It therefore, explain whether investment in inventories is within proper / limits or not. Total Purchases
Creditors Turnover Ratio = --------------------------------- Average Accounts Payable The ratio is calculated as follows: Cost of goods sold
Stock Turnover Ratio = --------------------------- Average Inventory
OR
Net Sales = ------------------------------------------- Average Inventory at selling a Price

Opening Inventory + Closing Inventory
Average Inventory

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