Definition Of Financial Statement Analysis :
In the words of Kennedy and Mc Millan “the relationship of an item to another expressed in simple mathematical form is known as a ratio”
Expression of Ratios:
Ratios are expressed in three ways:
1. Time: In this type of expression one number is divided by another number and the quotient is taken as number of times. For example, expressing the attendance of 40 students present in a class of 80 students would be:
2. Percentage: It is expressed in Percentage. When the above example is expressed as percentage, it would be as under
3. Pure: It is expressed as a proportion. In the above example, this would be as under
This may also be expressed as 0.5:1.
The study of relationships between various items or groups of items in financial statements is known as ‘Financial Ratio Analysis’.