An Introduction to Ratio Analysis
- Ratio analysis involves extracting information from financial accounts to assess business performance and answer key questions including
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- Why is one business more profitable than another in the same industry?
- Is a business growing?
- How effectively is a business using assets and capital invested?
- What returns on investment are expected?
- How risky is the financial structure of the business?
Information Extracted from the Profit & Loss Account and Balance Sheet for Ratio Analysis
Profit & Loss Account |
Balance Sheet |
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- Ratio analysis supports evidence-based decision making, as it provides measurable data that can be used to support judgements and compare performance against objectives
The Ratio Analysis Process