Ratio Analysis

Introduction

It is necessary for a company to evaluate businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. One of the most common ways of analyzing financial data is to calculate ratios from the data to compare against those of other companies or against the company's own historical performance.

Financial Ratio Analysis is the calculation and comparison of main indicators - ratios which are derived from the information given in a company's financial statements. It involves methods of calculating and interpreting financial ratios in order to assess a firm's performance and status. This Analysis is primarily designed to meet informational needs of investors, creditors and management. Therefore, maneuvering these entire ratios will certainly give us a scenario of the company’s current position in the market. By comparing with the previous year ratio and industry average, these ratios can indicate whether the company is doing better or bad in the market.

Objectives

The objective is to analysis is the comparative measurement of financial data to facilitate wise investment, credit and managerial decisions. On the other hand we can say that the ratio analysis is used to evaluate a company's financial and operating status. It's usually used in comparative terms, i.e. current year as compared with prior years. It provides information about a company's solvency and profitability.

We are doing financial ratio analysis of five companies of textile industry. The companies are Alltex...