Author: Ayaz Haider
Ratio analysis is the study of financial statements with respect to calculation and comparison of ratios. The resulting information can represent a company's situation financially, operationally and prosperity of investment. This information is mainly intended to present in front of stake holders, banks and other financial institution for obtaining debts or investments.
Financial ratios are derived from company's financial statements at any given period. An analyst can use it in preparing comparative analysis for example, take the value of GP (gross profit) and divide it with revenue then multiply with 100. It will give you a percentage that you can compare with past years to identify the trend line. Information that comes from ratio analysis is only effective if combined with a comparative study like previous example.
Financial ratio analysis is of different types according to the requirements at given scenario, following are some of them:
As with any financial tool, ratio analysis has its pros and cons, they are:
There are many online specialized firms providing ratio analysis services at affordable cot such as iSource Biz, it provides ratio analysis as well as many other financial services.
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