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ad-work [718]
3 years ago
14

. Information found on the company's income statement and balance sheet is extracted from these documents and examined more clos

ely through the use of
Business
2 answers:
zhenek [66]3 years ago
8 0

Answer: Ratio Analysis

Explanation;

Ratio analysis is a very important method of financial analysis that enables one to make inferences and see relationships from the data presented by a company in it's financial statements.

Most ratios are divided into 5 different types being;

  • Profitability
  • Liquidity
  • Activity
  • Debt, and
  • Market

An example of a Liquidity ratio would be the Current Ration which divides Current Assets by Current Liabilities to see if the company has enough liquidity to pay off current liabilities.

Degger [83]3 years ago
3 0

Answer:

Ratio analysis

Explanation:

Financial statements are used to show the assets, liabilities, revenues, expenses, and owners equity of a business entity within a given time frame.

Income statement is revenue less expense within a given period. While the balance sheet shows the financial position of a business at a particular point, that is its assets, liabilities, and owner equity.

Information form financial statements are analysed by the use of ratio analysis to gain a better understanding of financial condition of an organisation.

Ratio analysis compares the magnitude of line items within financial statements to determine liquidity, profitability, solvency and operational efficiency of a business.

For example current ratio shows how well a business can use its current assets to settle its current liability, this is a liquidity ratio.

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<em />

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