Question

What are the Objectives of Ratio Analysis?

Options

• To know the areas of the business

• To know about the potential areas

• To provide a deeper analysis of the profitability

• All of the above

Answer 1

All of the above

Explanation:

The use of ratio analysis in the evaluation of financial statement outcomes is essential. It necessitates a thorough understanding of how financial statements are prepared and the regulations that govern them. When done correctly, it delivers a wealth of information to the analyst, allowing them to:

1. To know the areas of the business which need more attention; 
2. To know about the potential areas which can be improved with the effort in the desired direction. 
3. To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business; 
4. To provide information for making cross-sectional analysis by comparing the performance with the best industry standards.