Outrageous Interpretation Of Accounting Ratios

The Interpretation of Accounts or Ratios question has appeared as question 5 on the Leaving Cert exam every year to date.

Interpretation of accounting ratios. The percentage of gross profit to sales or the working capital ratio. Financial ratios are mathematical comparisons of financial statement accounts or categories. Accounting ratios can be performed using a.

The benefit of ratio analysis depends a great deal upon the correct interpretation. The interpretation of ratios is an important factor. Financial statement ratio analysis focuses on three key.

Though calculation of ratios is also important but it is only a clerical task whereas interpretation needs skill intelligence and foresightedness. 2 Interpretation Here the results of analysis are used to judge a business performanceThis is done by making comparisons a with other similar businesses usually within the same year eg. Financial ratios relate or connect two amounts from a companys financial statements balance sheet income statement statement of cash flows etc.

Accounting ratios are one of the important tools of financial statement analysis. These showcase a relationship between two or more accounting numbers that are taken from the financial statements. Was the gross profit to sales percentage last year better or worse.

Interpretation of Accounting Ratios. Further such ratios are expressed either as a fraction percentage proportion or. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time.

Ratio analysis is used to evaluate relationships among financial statement items. While they may initially appear complicated accounting ratios are simple calculations that use the numbers found on your companys financial statements. The purpose of financial ratios is to enhance ones understanding of a companys operations use of debt etc.