Question

Explain the utility of any five accounting ratios

Answer 1

Answer:

Explanation:

• Easy to understand the financial position of the firm: The ratio analysis facilitates the parties to read the changes taken place in the financial performance of the firm from one time period to another.

• Measure of expressing the financial performance and position: It acts as a measure of financial position through Liquidity ratios and Leverage ratios and also a measure of financial performance through Profitability ratios and Turnover Ratios.

• Intra-firm analysis on the financial information over many number of years:The financial performance and position of the firm can be analysed and interpreted with in the firm in between the available financial information of many number of years; which portrays either increase or decrease in the financial performance.

• Inter-firm analysis on the financial information within the industry: The financial performance of the firm is studied and interpreted along with the similar firms in the industry to identify the presence and status of the respective firm among others.

• Possibility for Financial planning and control: It not only guides the firm to earn in accordance with the financial forecasting but also facilitates the firm to identify the major source of expense which drastically has greater influence on the earnings.