Question

What is the utility of ratio analysis? Explain different ratios with examples.

17 Feb 2026
Answer :
Word Count : 838
Ratio analysis is a quantitative tool used in accountancy and financial management to interpret the financial statements of a business. It involves establishing meaningful relationships between various items in the balance sheet, income statement, and cash flow statement to evaluate the financial performance and position of an enterprise. The primary utility of ratio analysis lies in simplifying complex accounting data into understandable and comparable figures, which helps stakeholders in decision-making. It enables management, investors, creditors, and other users to assess profitability, liquidity, solvency, and operational efficiency. By comparing ratios over different periods or with industry standards, analysts can identify trends, strengths, weaknesses, and areas requiring improvement. One major utility of ratio analysis is in measuring liquidity. Liquidity refers to the ability of a business to meet its short-term obligations. Liquidity ratios help creditors and suppliers assess whether the company ___ _______ ________ ________ __________ _________ _________ _____ ____ __________ ____ _____.
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