Write the meaning of Ratio Analysis.

Ratio analysis is a quantitative technique used in financial statement analysis to evaluate the financial performance, liquidity, solvency, and efficiency of a business. It involves calculating and interpreting various financial ratios derived from the balance sheet, income statement, and cash flow statement.

Key purposes of ratio analysis include:

• Assessing profitability (e.g., gross profit margin, net profit margin).
• Evaluating liquidity (e.g., current ratio, quick ratio).
• Measuring solvency (e.g., debt-to-equity ratio, interest coverage ratio).
• Analyzing efficiency (e.g., inventory turnover, accounts receivable turnover).

Ratios help stakeholders (investors, creditors, managers) compare a company’s performance over time (trend analysis) or against industry benchmarks. They provide insights into financial health, operational efficiency, and risk exposure, aiding decision-making.