How is a ratio analsis used in decision?

Answer 1

Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.

• Leverage Ratios which show the extent that debt is used in a company's capital structure.

• Liquidity Ratios which give a picture of a company's short term financial situation or solvency.

• Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets.

• Profitability Ratios which use margin analysis and show the return on sales and capital employed.

• Solvency Ratios which give a picture of a company's ability to generate cashflow and pay it financial obligations.