MANAGEMENT ACCOUNTING

TOPIC:-RATIO ANALYSIS

BY
SNEHAL MUTHA
ROLL NO-206
PUNE

CONTENTS
RATIO ANALYSIS

Meaning of Ratio Analysis

Advantages of Ratio Analysis
Limitation of Ratio Analysis
Types of Ratio Analysis
Detailing of Liquidity Ratio &
Efficiency Ratio

MEANING
Ratio is one of the most important tools of financial statement analysis.
A ratio is defined as indicated quotient of two mathematical expressions and as
relationship
between two or more things.

Ratio can be expressed in two ways :

A) Times: when 1 value is divided by another , the unit used to express the quotient is
termed as Times
Ex: if out of 100 students in class 80 re present , then attendance ratio can be as
follows80/100=8 times.
B) Percentage: If quotient obtained is multiplied by 100, the unit of expression is termed as
Percentage
Ex: In above example, the attendance ratio as a percentage of the total number of
students as
follow9*100=90%

ADVANTAGES
Detection of
trouble spot

Efficiency
Easy
comparison
Clarity

Profitability

Ratio analysis help management to pin point specific areas that

reflects improvement
Deterioration as well as detect loop holes that may prevent the attainment
of
object.
It throws light on the efficiency of the business organization . It permits

monetary figures
Of many digits to be condensed to two or three digit which enhance

It permits
the comparison of firms with data for similar firms and post
managerial
efficiency
with industry wise Data. and it permits to be measured performance or of
sound financial condition.

It provides greater clarity, perspective , or meaning to data and it

brings information
Not otherwise apparent.

It helps in investment decision , it measures profitability and solvency

of concern.it helps In effective cost control.

LIMITATIONS
NO SCIENTIFIC BASE== It lacks standard value foe the ratio, therefore scientific analysis is
not available and it has
no technical base
NO STANDARDS
==As there are no standards with which to compare , it fails to throw
light on efficiency of
any activity of the business.
NO ACTUAL RATIOS==It gives only the relationship between different variable and actual
magnitude not known
through ratios.
NO DETECTION OF ==Ratios are derived from financial statements and naturally reflects
the drawback
ERRORS
hence it fails to indicate immediately all the mistakes and errors
that lies.
CONSIDERATIONS== It do not take in consideration the market changes and all other

TYPES OF RATIOS
LIQUIDITY RATIO

1)CURRENT RATIO

SOLVENCY RATIO

1)DEBT EQUITY /
DEBT ASSEST RATIO

PROFITABILITY
RATIO

1)SALES

2)INVESTMENT-

a)GROSS PROFIT
RATIO

a)RETURN
ON ASSESTS
RATIO

EFFICIENCY
RATIO/ ACTIVITY
BASED RATIO/
TURNOVER RATIO

1)INVENTORY/
STOCK TURNOVER
RATIO
2)RECIEVABLES /
DEBTORS
TURNOVER RATIO

2) QUICK RATIO
/ACID TEST RATIO
2) COVERAGE RATIO

b) NET PROFIT
RATIO

c) OPERATING /
EXPENSES RATIO

b)CAPITAL
EMPLOYED RATIO

3)TOTAL ASSEST
TURNOVER RATIO

4)CREDITORS
TURNOVER RATIO

DETAILING OF LIQUIDITY RATIO AND EFFICIENCY RATIO

LIQUIDITY
RATIO
RATIO
CURRENT RATIO

ACID TEST RATIO/

QUICK RATIO

EFFICIENCY
RATIO
FORMULA
= Current Assets
Current
liabilities

RATIO

FORMULA

1)INVENTORY/
STOCK TURNOVER
RATIO

=Cost of goods
sold
Average
Inventory at Cost

2)RECIEVABLES /
DEBTORS
TURNOVER RATIO

=Accounts
Receviables
Net Sales

3)TOTAL ASSEST
TURNOVER RATIO

=
Sales
Total Assests

4)CREDITORS
TURNOVER RATIO

=Credit Purchases
Average
Creditors

THANK
YOU!!!