Important Points for IC 89 - Management Accounting Exam
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Financial statement analysis enables 3 types of comparison in financial management: Ratios for Trend Analysis, Ratios for Inter-firm comparison, Ratios for Comparison with accepted standard.
Ratios are classified into six broad groups: Ratios for Liquidity Analysis, Ratios for Profitability Analysis, Ratios for Activity or Turnover Analysis, Solvency and integrated Analysis, Ratios for Capital Structure and Ratios for Growth and valuation ratios.
Liquidity ratios indicate the ability of the firm to meet its current or short-term obligations as and when they become due for payment.
Important Liquidity ratios are as follows: Current Ratio, Acide Test Ratio and Cash Ratio.
Following are a few standard profitability ratios geerally followed or considered by firms for financial management purpose: Gross profit ratio,Operating Ratio, Operating Profit Ratio, Net Profit Ratio, Return on Investment, Return on Shareholders fund.
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