Ratio analysis is a powerful tool for financial analysis. A meaningful analysis of a financial statement is made possible by the use of ratios.
Ratios are a set of figures compared with another set. The comparison gives an understanding of the financial position of a business unit. There are a number of ratios which can be computed from a single set of financial statements. The ratios to be computed depend on the purpose for which these ratios are required. A single ratio may sometimes give some information, but to make a comprehensive analysis, a set of inter-related ratios are required to be analysed.
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