managemet accounting ppt

1. BY-ABDULWAHAB IMAMUDDIN BHAIEE
M.COM-I
ROLL NO.-7815

2. RATIO ANALYSIS(ACCOUNTING RATIOS)
 IT IS A
MATHEMATICAL
EXPRESSION OF THE
RELATION BETWEEN
TWO ITEMS OR
GROUP OF ITEMS
SHOWN IN THE
FINANCIAL
STATEMENTS.

3. RATIO ANALYSIS MEANING:
 RATIO ANALYSIS:-
IT IS THE PROCESS OF COMPUTING,
DETERMINIG AND PRESENTING THE
RELATIONSHIP OF ITEMS AND GROUP
OF ITEMS IN THE FINANCIAL
STATEMENT.
IT IS AN IMPORTANT TECHNIQUE OF
FINANCIAL ANALYSIS.

4. ADVANTAGES OF RATIO ANALYSIS
 USEFUL IN ANALYSIS OF FINANCIAL
STATEMENT;
 USEFUL IN SIMPLIFYING ACCOUNTING FIGURES;
 USEFUL IN JUDGING THE OPERATING EFFICIENCY
OF BUSINESS:
 USEFUL IN FOARCASTING:
 USEFUL IN INTER-FIRM AND INTRA FIRM
COMPARISON

5. LIMITATIONS OF FINANCIAL RATIO
ANALYSIS
 FALSE RESULTS:
 NOT COMPARABLE IF DIFFERENT FIRMS:
 AFFECT OF PRICE LEVEL CHANGES:
 IGNORES QUALITATIVE FACTORES:
 WITHOUT FURTHER INVESTIGATION ,RATIO
MAY NOT SERVE THEIR PURPOSES

6. RATIO ANALYSIS
1-LIQUIDITY RATIO
 A)-CUURENT RATIO
 B)-QUICK RATIO/ACID TEST OR LIQUID RATIO
 ABSOLUTE LIQUID RATIO

7. 1.LIQUIDITY RATIOS:
 LIQUIDITY RATIO ARE ALSO TERMED AS SHORT-
TERM SOLVECY RATIO
 TO MEASURE THE LIQUIDITY OF FIRM ,THE
FOLLOWING RATIOS ARE COMMONLY USED:
1.CURRANT RATIO
2.QUICK RATIO /ACID TEST
ABSOLUTE LIQUID RATIO/CASH
POSITION RATIO

8. 1.CURRANT RATIO;
CURRENT RATIO ESTABLISHES THE RELATION BETWEEN
CURRENT ASSETS AND CURRENT LIABILIITES.
 FORMULA:-Current ratio is calculated using the following formula:
 Current Ratio =Current Assets/Current Liabilities
ADVANTEGES:
A) CURRENT RATIO HELPS TO MEASURE THE LIQUIDITY.
B) IT INDICATE LIQUIDITY OF COMPANY.
C) IT REPRESENTS A MARGIN OF SEFETY.
D) IN HELPS TO MEASURE THE SHORT-TERM FINANCIAL
POSITION OF A COMPANY OR SHORT-TERM SOLVENCY OF A
FIRM

9. 2.QUICK RATIO(0R)ACID TEST OR LIQUID RATIO
 THE ACID TEST RATIO IS A MORE SEVERE AND STRINGENT TEST
OF A FIRMS ABILITY TO PAY ITS SHORT-TERM OBLIGATION AS
AND WHEN THEY BECOME DUE
 FORMULA:-Current ratio is calculated using the following formula:
 LIQUID RATIO=LIQUID ASSEST(CURRENT ASSETS-STOCK AND
PREPAID EXPENSES)/ CURRENT
LAIBILITES
ADVANTAGES;-
A) QUICK RATIO HELPS TO MEASURE THE LIQUIDITY POSITION
OF A FIRM.
B) IT IS USED AS A SUPPLEMENTRY TO THE CURRENT RATIO.
C) IT IS USED TO REMOVE IN HERENT DEFECT OF CURRENT
RATIO.