# Ratio Analysis: Use And Significance Of Ratio Analysis In Financial Analysis

Use and significance of ratio analysis:-

The ratio analysis is one of the most powerful tools of the financial analysis. this is used to a device to analyze and interpret the financial health of enterprise. Ratio analysis is stands for the process of determining and presenting the relationship of items and groups of items in the financial statements. It is an important tool of the financial analysis.

The main following are the points of importance of ratio analysis:

a) Managerial uses of ratio analysis:-

Helps in decision making:-

Helps in financial forecasting and planning:-

Helps in communicating:-

Helps in co-ordination:-

Helps in control:-

b) helpfulness to shareholders/investors:-

Ratio analysis

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(iii) Cash ratio and

(iv) Networking capital ratio.

Current Ratio: Current ratio is calculated by dividing current assets by current liabilities.

Current assets Current Ratio = Current Liabilities

The current ratio is a measure of firm’s short-term solvency. A ratio of greater than one means that the firm has more current assets than current claims against them Current liabilities.

Quick Ratio: Quick ratio also called Acid-test ratio, establishes a relationship between quick, or liquid, assets and current liabilities. The quick ratio is found out by dividing quick assets by current liabilities.

(Quick Assets = Current Assets = Inventories)

Quick Assets Quick Ratio = Current