Accounts

Usefulness of Accounting Ratio An accounting ratio toilette be defined as “ quantitative relationship in the midst of ii or more items of the financial statements connected with for each one separate”. Accounting ratios atomic number 18 computed from devil or more figures taken from the financial statements of a social club in put together to leave behind an indication of the financial performance and position of that company. Ratio analytic sentiment caters to the needs of diverse parties forgetested in financial statements. The staple fibre objective of ratio analysis is to help centering in the interpretation of financial statements to enable it to perform the managerial helps efficiently. Uses call: Ratios reveal the trends in costs, sales, profits and other inter cogitate facts, which will be helpful in omen coming(prenominal) events. Managerial control: Ratios can be used as “instrument of control” regarding sal es, costs and profit. Facilitates communication: Ratios facilitates the communication sour of oversight as ratios convey the information relating to the present and ledger entry quickly, forcefully and clearly. Measuring efficiency: Ratios help to know operating(a) efficiency by comparison of present ratio with those of the archaic working and also with those of the other firms in the industry.

Facilitating investment decisions: Ratios ar helpful in computing return on investment. This helps the counsel in exercising effective decisions regarding profitable avenues of investment. Useful in measuring financia l solvency: The financial statements disclo! se the assets and liabilities in a format. But they do not convey relationship of heterogeneous assets and liabilities with each other, whereas ratios indicate the liquidity position of the company and the correspondence of borrowed funds to total resources which reveal the short term and blanket(a) term solvency position of the firm. Inter firm comparisons: Inter-firm comparisons help the trouble to compare its performance...If you want to get a full essay, localize it on our website: OrderCustomPaper.com

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