EXPLANATION: Financial Ratio Analysis

                                                          Financial Ratio Analysis

A financial statement: It is an official document of the firm, which explores the entire financial information of the firm. The main aim of the financial statement is to provide information and understand the financial aspects of the firm.

financial analysis: this can be defined as the process of identifying th strenght and weaknessess of a firm taking comparism between financial statement and income statement.
financial statement = balance sheet
income statement = trading, profit and loss account

Ratio: This is defined as an indecated quotent of mathematical expression

                                                         TYPES OF RATIO
1. Liquidity ratio: This ratio helps to understand the liquidity in a business which is the potential ability to meet current obligations. Liquidity ratio divided into TWO: A. current ratio B. acid test ratio or quick ratio

2. Leverage ratio: It is also called as solvency ratio, which measures the long-term obligation of the business concern. This ratio helps to understand, how the long-term funds are used in the business concern.
                                     Leverage ratio divided into THREE:
A. Debt-Equity Ratio
B. Proprietary Ratio
C. Interest Coverage Ratio

3. Activity ratio: It is also called as turnover ratio. This ratio measures the efficiency of the current assets and liabilities in the business concern during a particular period. This ratio is helpful to understand the performance of the business concern.
                                    Activity ratio divided into FOUR:
A. Stock Turnover Ratio
B. Debtors Turnover Ratio
C. Creditors Turnover Ratio
D. Working Capital Turnover Ratio

4. Profitability ratio: Profitability ratio helps to measure the profitability position of the business concern.
                                   profitability ratio divided into FOUR:
A. Gross Profit Ratio
B. Net Profit Ratio
C. Operating Profit Ratio
D. Return in Investment