Advantages of Ratio Analysis :

Ratio analysis is an important technique in financial analysis. It is a means for judging the financial soundness of the concern. The advantages of accounting ratios are as follows:

1. It is an useful device for analysing the financial statements.

2. It simplifies, summarizes the accounting figures to make it understandable.

3. It helps in financial forecasting.

4. It facilitates interfirm and intrafirm comparisons.

Ratio analysis is useful in finding the strength and weakness of a business concern. After identifying the weakness, the ratios are also helpful in determining the causes of the weakness.