Ratio Analysis Ratio analysis is a process of determining and presenting the relationship between items and groups of items in financial statements in order to provide information to the financial statements in a concise form. According to Myres, "ratio analysis is largely a study of the relationship between the various financial factors of a company, as disclosed by a single set of statements, and a study of the trend of these factors, as it appears in a series of statements. » Advantages of ratio analysis It facilitates the understanding of financial statements and the evaluation of several aspects such as the financial health, profitability and operational efficiency of the company. It provides inter-company comparison to measure effectiveness and helps management take corrective action. It is also useful in preventing business illnesses and helps management in taking corrective action. Analyzing trends using ratios helps in planning and forecasting. It helps in investment decisions in the case of investors and lending decisions in the case of bankers and financial institutions. Disadvantages of Ratio Analysis Ratios are an attempt to do an analysis of past financial statements; these are therefore historical documents. Nowadays, given the complexity of business, it is important to have an idea of ​​likely events in the future. Changes in price levels make it difficult to compare over several years. For example, the ratio of sales to total assets in 1999 would be much higher than in 1980 due to rising prices. Types of Ratio 1.ROCE 2.Gross Profit 3.Operating Ratio 4.Price Profit 5.Dividend Ratio 6.Fixed Assets Ratio 7.Stock Turnover Ratio 8.Creditors Turnover 9.Debtors Turnover 10.Liquidity ratio 11.Quickness ratio.. .... middle of paper......older equity + long-term debt Example: Ordinary share capital for the year = $500,000 Preferred share capital by 8% for the year = 200,000 Profit for the year = 300,000 Long-term debt for the year = 400,000 Debt to equity ratio = 400,000 * 100 = 28.75% 1,000,000 + 400,000 Explanation: This is the most important ratio and is generally used by long-term financiers. It represents the composition of long-term investments in fixed assets made by foreigners and owners. In accordance with prudential regulations, the required debt/equity ratio is 60:40. This proportion reveals that in the total capital expenditure, financiers and 40% of owners contributed 60%. This proportion gives reasonable security to lenders. References Advance Accounts Volume 1 by MCChukla Frank Wood's Business Accounting 7th Edition Financial Accounting by PBP