17 September 2008
Basically the Ratio Analysis is done for the purpose of analysis of pin pointing the deviation of current results from the past performance or the ideal ratio. A critical analysis is necessary to find out the reasons for all favourable and unfavourable results so that a suitable remedy to rectify the same is decided.
As an example, we can discuss the Stock-Turnover Ratio. We can compare two different organisations dealing in the same product;in case the Stock-turnover ratio of one is 30days as against the other with 50days then one can say that the first one seems to be in healthy state as the stock are sold frequently which may result into high profitability and the investment in such organisation may be rewarding.
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