Radio-Analysis MBA Project Report

RATIO ANALYSIS

MEANING

The term ‘ratio’ refers to the numerical or
quantitative relationship between two
items/ variables.

Thus a ‘ratio’ is a simple arithmetical
expression of the relationship of one
number to another and is obtained by
dividing the former by the later.

When this ratio is expressed with
reference to the items shown in financial
statement, then it is called ‘accounting
ratio’.

The ratio is calculated by dividing
one item of the relationship by the
other. The dividing number is known
as the base or base number. The
other number is expressed in relation
to this base number. In ratio analysis
base is always taken as 1 or 100 &
the other number is expressed in its
comparison.

For example:
If sales are four times the average
stock then in terms of ratio we
express it as 4:1 & not 1:0.25.

EXPRESSION OF RATIO

Pure Ratio:
In this, the relationship between two items
is expressed in proportionate form. In other
words, the relationship between two figures
is expressed in a common denominator.
For example – if current assets & current
liabilities of an enterprise are Rs.20,000 &
Rs.10,000. The pure ratio between current
assets & current liabilities will be
20,000 = 2:1
10,000

Comments are closed.