ratio analysis


Ratio analysis

A way of expressing relationships between a firm's accounting numbers and their trends over time that analysts use to establish values and evaluate risks.

Ratio Analysis

The study of the significance of financial ratios for a company. Ratio analysis is very important in fundamental analysis, which investigates the financial health of companies. An example of ratio analysis is the comparison of price-earnings ratios of different companies. This helps analysts determine which companies' share prices properly reflect their performances and therefore what investments are most likely to be the most profitable.

ratio analysis

A study of the relationships between financial variables. Ratios of one firm are often compared with the same ratios of similar firms or of all firms in a single industry. This comparison indicates if a particular firm's financial statistics are suspect. Likewise, a particular ratio for a firm may be evaluated over a period of time to determine if any special trend exists. Compare trend analysis. See also horizontal analysis, vertical analysis.

ratio analysis

the calculation and use of ACCOUNTING RATIOS to analyse the trading performance, liquidity and financial security of a company over time and by comparison with other firms. See INTERFIRM COMPARISON.