Uses of Ratio Analysis

Ratio analysis is a technique of analyzing the financial statements by calculating ratios. Here is the list of uses of ratio analysis –

1. It is useful for inter firm comparison which implies that company compares its performance with that of its industry peers.

2. It is useful in intra firm comparison which means that company will compare the performance of various departments of the company so as to judge the best department within the company.

3. It is useful in simplifying the accounting figures to make them understandable to a layman, because it is easier to understand ratios then plain figures.

4. It is also useful in forecasting and planning for the future, also it helps in control by comparing the actual performance with that of forecasted performance and looking for reason for it.

5. It is also used for analysis of financial statements by various interested parties like bankers, creditors, supplier etc…. for taking future decision about the company.

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