Financial Ratio Analysis in a Company

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According to Olowe (1997), Financial Ratio Analysis is the relationship between the performance of a company and the monetary data in the financial statements to assist the economic conditions. Financial ratio was defined by Robert (1994) as two financial variables being used that have been taken from either the income statement or from the balance sheet.
Ratio analysis is a tool that is brought in by individuals to perform an evaluative analysis of information in the company’s financial statements. It is an important tool of financial analysis and it focuses on the figures given in the income statement, fund statements and balance sheet. The figures are taken from the current year which is used for calculating the ratios and it is then compared to the previous years, other firms, their industry, and also the firm to evaluate the company’s performance. Moreover, ratio analysis is primarily used by proponents of the financial analysis. In fact, ratio analysis is commonly used in business. The role of ratio analysis is its significance as a means for a company to perform an internal evaluation of its performance over a stated period. The role of ratio analysis is to perform and evaluate within the company based on its performance over a period of time. An important feature of ratio analysis is that it gives a quick image of the financial state of the business to potential investors.
The advantages of ratio analysis are as follows: Financial Statement Analysis – Ratio

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