Financial statements are statements of income and Balance sheet which, highlight the income or profitability and change in fixed assets and capital during a specific period. Ratio analysis is one of the important techniques to explain salient features of financial statement.
The ratio analysis establishes relationship between two figures, for example, current assets are $10,000 and current liabilities are $30,000 the current ratio is 3:1, this means assets are 3 and liabilities are one after paying one dollar as a liability the balance of $2 will be as working capital.
The ratio can be in times, percentage and proportion. The ratio is used for comparison, for example, gross profit ratio for current year is also 40% previous year was 30 %. Thus, there is some improvement. Ratio is used for decision making. In this chapter, various ratios will be discussed and their utility for the business as a whole will be studied seriously. we have managed all the explanation about Ratio analysis in the form of questions and answers to assure better understandings for students.