Financial Ratios analysis one most powerful tools

The Ratios analysis is one of the most powerful tools of financial analysis. it is used as a device to analyse and interpret the financial health of enterprise. Just like doctor examines his patient by recording his body temperature, blood pressure etc. before making his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statements with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of an individual. It is with help of ratios that the financial statements can be analysed more clearly and decisions made from such analysis.

The use of ratios is not confined to financial managers only.There are different parties interested in the ratios analysis for knowing the financial position of a firm for different purposes. The supplier of good on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investments in the firm. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the condition is strong, good,questionable or poor. The conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. Thus ratios have wide applications.