Ways of expressing ratio
1. As a fraction or a ratio
A quotient is a unit of expression of this form, which is formed by dividing one thing by another. As an example: The working capital turnover ratio is . It means that the Net Sales is 5 times the working capital of the business.
2. As a decimal
Ratios are commonly stated as fractions, but they may also be presented as decimals. It can be converted between fractions and decimals when dealing with a mixture of fractions and decimals and comparing ratios presented in either form.
3. As a percentage
It can be expressed in percentage form i.e. by dividing one figure by another and multiplying by hundred. For instance, the Net Profit Ratio is 20%. It represents the connection between net earnings and revenue. This indicates that every ₹100 sale generates a net profit of ₹20 for the company.
4. As a proportion
The quantities of the two figures can be stated in a common thread. For example, the current ratio can be written as 2.5:1. That signifies that the current assets are worth Rs.250 and the current liabilities are worth Rs.100.
Cross-Sectional Analysis
Cross-sectional data analysis is the process of analyzing a data set at a certain moment in time. Cross-sectional data is commonly obtained via surveys and government databases. The datasets include observations of various variables at a specific point in time.
Time Series Analysis
Time series analysis is a method of examining a set of data points gathered over a period of time. Time series analysis involves analysts capturing data points at constant intervals over a predetermined length of time rather than merely occasionally or arbitrarily. This form of analysis, however, is more than just gathering data over time. What distinguishes time series data from other types of data is how the analysis may illustrate how values change over time. In other terms, time is an important variable since it indicates how the data adapt through time as well as the end outcomes. It adds another source of information and establishes a specific sequence of dependencies there between the data.
Ratio Analysis- Importance, Advantages and Limitations
A financial ratio, also known as an accounting ratio, is the size of two numerical values obtained from an organisation’s financial accounts. There are several standard ratios used in accounting to try to analyze the overall financial state of a firm or other entity. Accounting ratios, also known as financial ratios, are used to calculate a company’s performance and profitability based on its financial records. They provide a means of expressing the relationship between one accounting data item along with another and are the origin of ratio analysis. To put it another way, an accounting ratio denotes a quantitative agreement that is used for making decisions and analyses. It serves as the foundation for both intra and inter-firm comparisons.
What are Accounting Ratios?
Accounting ratios are the quantifiable or numerical connection between two accounting data used to assess a company’s performance. Ratios are used to compare many aspects of a company, such as revenue, liquidity, solvency, and efficiency, and can be stated as a percentage, fraction, or decimal. Accounting ratios are those that are determined using financial data documented in a company’s financial statements.