{"id":153585,"date":"2022-05-07T18:30:16","date_gmt":"2022-05-07T13:00:16","guid":{"rendered":"https:\/\/cbselibrary.com\/?p=153585"},"modified":"2022-05-11T10:52:53","modified_gmt":"2022-05-11T05:22:53","slug":"advantages-and-disadvantages-of-ratio-analysis","status":"publish","type":"post","link":"https:\/\/cbselibrary.com\/advantages-and-disadvantages-of-ratio-analysis\/","title":{"rendered":"Advantages And Disadvantages Of Ratio Analysis | Ration Analysis Meaning, Advantages, Limitations, Objectives and Types"},"content":{"rendered":"

Advantages And Disadvantages Of Ratio Analysis:<\/strong> The quantitative analysis of data that is enclosed in the enterprise financial statement can be defined as the ratio analysis. The main objective of ratio analysis is to assess various multiple perspectives on the status of enterprise working and financial performance. For instance, the liquidity, solvency, and turnover of the enterprise. We can also say that ratio analysis is the method of analyzing and comparing financial data by computing meaningful statements and value percentages rather than using the line items of financial statements.<\/p>\n

The ratio analysis is mainly useful for the analysts acting outside the business as their primary source of information about an enterprise is the financial statement. The corporate insiders generally have the access to all the operational information about the organization or company, hence ratio analysis is less useful to the corporate insiders.<\/p>\n

Students can also find more\u00a0Advantages and Disadvantages<\/strong><\/a>\u00a0articles on events, persons, sports, technology, and many more.<\/p>\n

What is Ratio Analysis? Advantages and Disadvantages of Ratio Analysis 2022<\/h2>\n

As mentioned above, ratio analysis is the method of analyzing and comparing financial data by computing meaningful statements and value percentages rather than using the line items of financial statements. The concept of ratio analysis can be broadly classified into six silos. They are liquidity ratio, solvency ratio, profitable ratio, efficiency ratio, coverage ratio, and market prospect ratio.<\/p>\n

The company or enterprise can pay off the short-term debt, this ability is known as the liquidity ratio. This ratio includes the current ratio, working ratio, and capital ratio. A type of ratio that compares the company’s debt with its asset, earnings, and equity to determine the likelihood of the company staying at a long haul can be defined as the solvency ratio. It is also known as the leverage ratio.<\/p>\n

Now, the ratio that conveys a message that how well a company can earn profit by their operation is known as the profitability ratio. Gross margin, profit margin, return on investment, and so on are examples of profitability ratios. A ratio that analyses how efficiently the company can use its assets and liability to maximize its profits is known as the efficiency ratio, also known as the activity ratio. The most commonly used ratio to analyze the fundamental basis of the enterprise is known as the market prospect ratio.<\/p>\n

To recall, the quantitative analysis of data that is enclosed in the enterprise financial statement can be defined as the ratio analysis. It has its own merits and demerits in ratio analysis. The following points mentioned below analyze their advantages in detail.<\/p>\n