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Ratio Analysis

Ratio Analysis. Ratio. A ratio is an arithmetical expression of relationship between two related or interrelated items.

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Ratio Analysis

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  1. Ratio Analysis

  2. Ratio • A ratio is an arithmetical expression of relationship between two related or interrelated items. • The term accounting ratio is used to describe significant relationships that exist between figures shown in a balance sheet, in a profit and loss account or in any part of accounting organization.

  3. Ratio analysis • Ratio analysis is the study of relationship among various financial factors in a business. • Objective of ratio analysis is to judge the earning capacity, financial soundness, operating efficiency of a business organization.

  4. Advantages of ratio analysis

  5. Limitations of ratio analysis

  6. Liquidity Ratios

  7. Current Ratio = Current Assets Current liabilities

  8. Question 1 • Calculate current ratio from the following:

  9. Question 2 • Working capital – Rs 15,000 • Total debt – Rs. 32,500 • Long term debt – Rs. 25,000 Calculate current ratio.

  10. Question 3. • Working capital – Rs. 7,20,000 • Creditors – Rs. 40,000 • Other current liabilities – Rs. 2,00,000 Calculate current ratio.

  11. Question 4 • Current assets – Rs. 4,00,000 • Stock – Rs. 2,00,000 • Working capital – Rs 2,40,000 calculate current ratio.

  12. Question 5. • Calculate current ratio, acid ratio and absolute liquid ratio. What conclusions you draw about the company on the basis of these ratios.

  13. Question 6 • The current ratio of A Ltd. Is 4.5:1 and liquid ratio is 3:1. stock is Rs. 3,00,000. What are the current liabilities?

  14. Question 7 • Quick ratio is 1.5; current assets Rs. 1,00,000; Current liabilities Rs. 40,000. Calculate the value of the stock.

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