What is the use of ratio analysis?

The

ratio is used in accounting, financial and marketing departments to better inform and adequate prognosis. The use of a ratio analysis varies from creating accounting statements of common size to determine the turnover of the company's stock or monitoring the success of a marketing campaign over time. Standard ratios are used for different departments to perform specific tasks. Although the use of ratio analysis is important for business decision -making, there is also a limitation of the use of such conditions.

The use of the ratio of the ratio involves breaking the data so that it can be compared. When comparing two sets of data, the ratios can help bring numbers to the equivalent number. For example, if a company wants to compare its monthly costs of goods sold over the last year, it should not look at unprocessed numbers. Instead, the company should calculate the costs of the goods sold as a percentage of total sales to see if the costs actually have or reduced.

Creating forecasts is another bondby living the analysis of the ratio. Comparison of conditions over time can help enterprises a reasonable prediction of what should be expected in the future if the conditions remain the same or similar. Disfolding data to ratios and comparing ratios over time can also help businesses find out whether trends or cycles appear.

Standard conditions have been developed to achieve certain types of analyzes in different areas of business. For example, in finance it is common to use profit per share, gross profitable range, return on assets and stock turnover ratios. Not only does it help the company in comparing historical data with each other and competitors, but employees are generally trained in using these specific conditions before hiring. Although most of the situation is easily calculated, the analyst must understand the importance of every ratio in the Order to avoid false assumptions.

Risk of using an analysis of the ratio involves misunderstanding PDirects made during its calculation, receipt of changes in price or use data that may be incorrect. The use of an analysis of the ratio is important in the analysis of the company's data, but may result in incorrect or misleading calculations. Restrictions on the use of the ratio of the ratio should not prevent businesses from using them, but the businesses should cause caution when decision -making decisions. For example, if the company has changed its prices and compares the profit ratios in this time period, it should be taken into account that the price change could affect the number of sales.