This project is based upon a MBA Project On Ratio Analysis. Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and “the relationship between two or more things”.project on ratio analysis for class 12
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and “the relationship between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluation the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An accounting figure conveys meaning when it is related to some other relevant information. For example, an Rs.5 core net profit may look impressive, but the firm’s performance can be said to be good or bad only when the net profit figure is related to the firm’s Investment.
The relationship between two accounting figures expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firm’s financial performance. For example, consider current ratio. It is calculated by dividing current assets by current liabilities; the ratio indicates a relationship- a quantified relationship between current assets and current liabilities. This relationship is an index or yardstick, which permits a quantitative judgment to be formed about the firm’s liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios.
STANDARD OF COMPARISON
The ration analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of:
- Past ratios, i.e. ratios calculated form the past financial statements of the same firm;
- Competitors’ ratios, i.e., of some selected firms, especially the most progressive and successful competitor, at the same pint in time;
- Industry ratios, i.e. ratios of the industry to which the firm belongs; and
- Protected ratios,e., developed using the protected or proforma, financial statements of the same firm.
In this project calculating the past financial statements of the same firm does ratio analysis.