Question

Significance of the topic about a study on financial position of the compnay using ratio analysis

Answer 1

Answer:-

• Analysis of Financial Statements

• Helps in Understanding the Profitability of the Company

• Analysis of Operational Efficiency of the Firms

• Liquidity of the Firms

• Helps in Identifying the Business Risks of the Firm

• Helps in Identifying the Financial Risks of the Company

• For Planning and Future Forecasting of the Firm

• To Compare the Performance of the Firms

hope it helps..

Answer 2

Explanation:

we have previously learned what ratios are. They are a comparison of two numbers with respect to each other. Similarly, in finance, ratios are a correlation between two numbers, or rather two accounts. So two numbers derived from the financial statement are compared to give us a more clear understanding of them. This is an accounting ratio.

Let us take an example. The income for the year from operations is let us say 1,00,000/- for a given year. The Purchases and other direct expenses cost around 75,000/-. So the Gross Profit of the year is 25,000/-. Now it can be said that the Gross Profit is 25% of the Operations Revenue. We calculate this as

G.P. Ratio = GPSales/Revenue ×100

G.P.Ratio = 25,0001,00,000 ×100

G.P. Ratio = 25%

One factor to be kept in mind is that ratio analysis is used only to compare numbers that make sense and give us a better understanding of the financial statement. Comparing random financial accounts should be avoided.