How ratio analysis provides a meaningful comparison of a company to Essay

How proportionality analysis provides a meaningful equation of a company to its industry, chief competitors, or to any other well run firm - Essay ExampleThese techniques help to comp be a companys performance with its chief competitors in same industry as well as monitor the companys progress over time.Accounting ratios is an important tool for financial assertion analysis. A ratio is defined as relation between two numbers expressed as fraction or as percentage. When such relationships are derived from the financial statements, they are called accounting ratios (Kim & Ayoun, 2005, p.2).Accounting ratios have immense application in interpretation of financial statements by helping perform both intra-firm and inter-firm comparison. Intra-firm comparison helps to measure the performance of the company on Y-O-Y basis while inter-firm comparison helps to evaluate Companys performance with its competitors.Ratios can be broadly class into income statement ratios (derived from income st atement), balance sheet ratios (derived from balance sheet) and composite ratios (one item from balance sheet and another from income statement).They help to evaluate the firms ability to comply its short term or current obligations. It is an indicator for the measure of working capital management. The firms short term obligations include carrying out day to day operations, payments to creditors for corrupt of raw materials, payment of daily wages of laborers, outstanding expenses and bills payables, etc. These current liabilities are financed by current assets (Bragg, 2012, p.73).It is the ratio of total long-term debt to total asset. man a low ratio provides security to creditors a high ratio helps the management to trade on equity. Hence it is also called the leverage ratio (Drake, 2008, p.9).It is the ratio of long term debt to shareholders fund (Equity shares, retained earnings, preference shares, and fictitious assets). Form the investors point of view a