Of all the tools of finanacial anlysis available with a financial anlyst the most important and the most widely used is ratio analysis. Simply started ratio anlysis is an analysis of financial statements done with the help of ratios. A ratio expresses the relationship that exists between two numbers and in financial statement anlysis a ratio shows the relationship between two interrelated accounting figures.
The accounting figures may be taken from the balance shhet and the resulting ratio is called a balance shhet ratio. But if both the figures are taken from profit and loss account ratio. Composite ratio is that which is calculated by taking one figure from profit and loss account and the other figure from balance sheet. A detailed discucssion on ratio analysis is made in the pages to come.
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