Ratio Analysis :
Ratio Analysis is used in the company or organization to analyze the business financials and trends based on categories like liquidity ratios, solvency ratios, profitability ratios, efficiency ratios, balance sheets, and Income statements.
The main purpose of using ratios analysis is to compare the financial performance over a period of time to evaluate and compare business performance to uncover trouble signs.
Few Types of Ratio in Business
- Liquidity: This shows whether the business will cover all the short-term liabilities and cash flow to cover the cost. It is just comparing the total company asset to the depts. it has.
- Activity: The efficiency of the company is calculated in the activity ratio. This is how the company uses its resources to make sales of the produced goods.
- Leverage: Company plans toward the long-term dept. payment and its operation depends on the dept. or not.
- Performance: Also known as ‘Profitability Ratios ‘ used to analyze the performance and profitability of the company’s different operations.
- Valuation: Determines the company’s share price currently in the market based on factors such as cash, working capital, cash flow, and much more.
Ratio Analysis objective :
- Profitability Measurement: Make the purpose of this report is to calculate the profit of the business operations and understand the net profits. To measure the profitability various parameters are considered like gross profit ratios, Net Profit Ratio, Expense Ratio, etc.
- Evaluation of Operational Efficiency: Certain ratios highlight the company’s ability in managing the asset and other resources. Proper utilization of cash is necessary to avoid cash blockages.
- Turnover Ratio: Highlights Mismanagement of Assets
- Single Ratio: Result of inter-related ratio analyzed.
- Ensure Suitable Liquidity: Using the Current Ratio and quick ratio helps the company maintain the liquid assets to meet its short-term solvency requirements.
- Long-Term Solvency: Determine the long-term solvency of any asset or firm in dept to take necessary actions to avoid liquidation in the future.
- Working capital: Ability to cover the current liabilities or debts with the value of the current assets.
Tally Prime does the ratio analysis of the business and is used to compare different financial data sets with a button click.
List of Reports in Tally For Ration Analysis :
- Calculate the net working capital of the company.
- View the business liquidity position.
- Total debtors list till the date the statement is taken.
- Details report for the effective use of the inventories of the company.
- Total credits with creditors details as of statement date.
- The trading activity of the business activity for the period of time.
- The complete report of current assets aspect of the working capital.
- Net Profit Report is the profit remaining after deducting direct and indirect expenses.
- The number of times the company effectively used the working capital.