What precautions should be taken before using Ratio Analysis as a technique for interpretation of financial statements?

What precautions should be taken before using Ratio Analysis as a technique for interpretation of financial statements?


- Reliability of the financial statements should be checked first as the ratio analysis is based on financial statements.

- It should be computed on the basis of inter related figures which have cause and effect relationship.

- The impact of inflation should be considered before computing the ratios.

- Determination of proper Standards

- Revision and Alteration

- Proper comparison

- Use of other methods with ratio analysis for accurate interpretation

- Proper recording should be done
What are the different groups under which ratios are classified?
The ratios can be classified under following different groups:…
What are the different benchmarks against which Ratios are compared?
The different benchmarks against which ratios are compared as follows:…
Explain liquidity group ratios.
Liquid Ratio or Acid Test Ratio or Quick Ratio indicates the backing available to liquid liabilities in the form of liquid assets…
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