Select Page

IMPORTANCE AND LIMITATIONS OF RATIO ANALYSIS

Importance

As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts or a comparative basis and enables the drawing of inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: (i) liquidity position, (ii) long-term solvency, (iii) operating efficiency, (iv) overall profitability, (v) inter-firm comparison, and (vi) trend analysis.

[vfb id=1]

Share This