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Financial Ratio Analysis Services For Indian Business

Ratios are a comparison of two numbers with respect to each other. Similarly, in finance, ratios are a correlation between two value, or rather two accounts. So, two numbers derived from the financial statement are compared to give us a better understanding by breaking down complex element to more easily interpretable format. The most common interest of most stakeholders, including the company itself, is to assess the health of a company in terms of its revenue, liquidity, the efficiency of operations, and profitability. Ratio Analysis in accounting hence becomes a vital tool for financial analysis and financial management.

Financial statements are generally insufficient to provide information to the readers or stakeholders at first instance on their own. The numbers shown in those statements required to be put into such a form or format so that stakeholders can better understand different aspects of the company's operations and its health in the expression given by the company. Ratio analysis's interpretation help business owners understand their businesses' financial positions without needing to have in-depth knowledge of accounting & bookkeeping.

We at Whiz Consulting have accounting experts who are specialised in identifying and calculating ratios and giving you an in-depth understanding of your business financial performance. Our financial ratio analysis services can help you understand your business shortcomings and strong points to help improve it. Additionally, outsource financial ratios service can help you get a new perspective of your business finance.If you are a business based in Delhi, Mumbai, Bangalore, Pune, Hyderabad, and other cities in India and , we are your go-to service provider for ratio analysis services.

Types of Ratios:

There are many types of ratios, and each one has different ratio analysis formulas. When applied accurately, each of these ratio analysis formulas can help analyse your finance in a better way. Following major categories of Ratios those have been evolved over a period of time:

Profitability ratios:

This ratio compares your business's ability to earn or generate revenue with its expenses. With the help of this ratio you can arrive at a desired rate of return. It includes ratios like:

  • Gross Profit Ratio
  • Operating Profit Ratio
  • Net Profit Ratios
  • Interest Coverage Ratio

Liquidity ratios:

This ratio measures the ability of a company to pay its debt on time. It is an important ratio or test to determine company ability to cover short term obligation and cash flow. It includes the ratios like:

  • Current Ratio
  • Working Capital Ratio
  • Quick Ratios etc.

Return on Investment Ratios:

Return on Investment or Return on assets measures amount of return generated, in relation to the investment cost. It is a broad measure of investment profitability. It includes the ratios like:

  • Return on Equity
  • Return on Assets

Efficiency Ratios or Activity Ratio:

This ratio measures how well a company operate their assets to generate income. It also signifies the time a company takes to collect cash from a customer or the time it takes to convert inventory into cash i.e. making sales. These ratios are also used by the company as well as its investors and creditors in looking at the operations of profitability of the company and to compare them. It includes the ratios like:

  • Inventory Turnover Ratio
  • Inventory Days
  • Accounts Receivable Ratio
  • Accounts Receivable Days
  • Accounts Payable Ratio
  • Accounts Payable Days
  • Working Capital Turnover
  • Cash Turnover

Solvency Ratios& Leverage Ratios:

It measures your business’s ability to make payments and pay off its long-term obligations to creditors. A balanced ratio indicate a more creditworthy and financially sound company in the long-term. It includes the ratios like-

  • Debt to Equity
  • Debt to Capital
  • Debt to Tangible Net Worth
  • Total Liabilities to Equity
  • Total Assets to Equity
  • Debt to EBITDA

Market Ratios:

These ratios help to understand the economic status of the stock of a particular public traded company. They determine the connection between the price per share of a company and its earnings, growth and assets or we can say it helps in indicating the value of a company. It includes the Ratios like:

  • Dividend Yield
  • Earnings Per Share
  • Price Earnings Ratio

Advantages of Accounting Ratios

At Whiz Consulting we expertise at identifying and calculating ratios for Indian Businesses and giving you in-depth in understanding your business financial performance.

Simplification of Complex Numbers

Ratio analysis simplifies complex accounting and financial data into simple ratios which can be to comprehended by stakeholders making it easier to take future decision.

Measure Trends

Ratios help compare current performance with previous records and facilitates trend in the movements of company operations. It also helps monitor and identify issues that can be highlighted and resolved.  

Facilitates Industry Comparison

Ratios help compare a firm's performance with similar competitors operating in a similar industry provides a better scope of inter-company comparison. It helps investors as well as the company to assess and review whether they are managing the company efficiently.

Frequently Asked Questions (FAQs)

Financial ratio analysis is the practice of comparing two or more items of financial data of a business's financial statements. Financial ratio analysis helps businesses to know their profitability, liquidity state, leveraging control, efficiency, ROI and the economic status of the stock in the case of a public traded company.
The advantages and disadvantages of ratio analysis are that it help stakeholder understand the company's financial position with the need to look at complex profit and loss account and a balance sheet. Calculating a few financial ratios can help you quickly assess how well you are doing and give you an early warning of financial problems. However, one major limitation of ratio analysis is that a single ratio can not help you understand your financial health. So you must calculate multiple ratios to come to some conclusion. Another limitation is that it is based on quantitative aspects of the firm and neglects qualitative aspects of the firm.
One might need ratio analysis services for various reasons. Outsource financial ratios service can help you get a new perspective of your business finance from an expert's point of view. It also helps your accounts department focus on daily bookkeeping and accounting needs without worrying about strategic decision-making.
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