Which of the following are the objectives of Ratio Analysis?
(A) To know the areas of the business which need more attention.
(B) To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business.
(C) To know about the potential areas which can be improved with the effort in the desired direction.
(D) To provide information derived from financial statements useful for making projections and estimates for the future.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B), (C) and (D)
Ratio analysis regroups the figures of the financial statements into meaningful relationships, so that the user can see where the business stands and where it is heading.
(A) To know the areas of the business which need more attention. — True. Ratios point out the weak areas that need attention.
(B) To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business. — True. Liquidity, solvency, activity and profitability ratios give a deeper analysis of each of these levels.
(C) To know about the potential areas which can be improved with the effort in the desired direction. — True. They also show the areas that can be improved with effort in the right direction.
(D) To provide information derived from financial statements useful for making projections and estimates for the future. — True. Trends in ratios are a base for projections and estimates for the future.
NCERT (2026-27 edition): |