# Importance Of Ratio Analysis

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2.1 Ratio Analysis The term ratio refers to one number conveyed in terms of another. The Ratio is a mathematical appearance of the liaison between two or more related numbers. Ratio Analysis, of all the tools of financial analysis available with a financial analyst the most vital and the most widely used tool is ratio analysis. Merely specified that ratio analysis is an analysis of financial statements done through the ratios. The analysis and interpretation done on the basis of the ratio give a clear idea about the present and the future. It helps the management as well as the stakeholders in decision making. A ratio expresses the relationship between two interconnected accounting figures. Both the accounting figures might be…show more content…
It deals with many purposes and it is helpful for the organisation, management and also for the aspiring investors, creditors and other outsiders.  In order to verify the efficiency of the firm, with which the working capital is efficiently managed in the enterprise this tool is very useful.  It helps an analyst in estimating the financial position and the performance of the business.  As this helps the financial analyst to check or detect whether the firm is financially sound or not, so it acts as a kind of health test of the business firm.  For the Imminent use it helps in creating the financial valuation. Role of Ratio…show more content…
Quick Ratio This ratio is used to indicate how the liquid asset and liquid liabilities are related. It measures the firm’s ability to pay off current obligations immediately. An asset is said to be liquid if it can be converted immediately in to cash without a loss of value; and stocks are considered to be less liquid because inventories normally require some time to get convert into cash. The ratio is known as acid-test ratio. Liquid liability is all current liability except bank overdraft.1:1 is the standard Quick Ratio. Liquid Asset Liquid Liability Liquid Ratio = iii. Super-Quick Ratio This ratio is used to indicate how the absolute liquid asset and liquid or current liability are related with each other Absolute Liquid assets consist of cash at bank. The standard ratio is 0.50:1 Absolute Liquid Asset Liquid Liability Super Quick Ratio