Expression of Ratios:
Ratio is an expression of one number in relation to another. Ratio analysis is the procedure of formative and interpreting the mathematical relationship between figures of financial statements. A ratio is a mathematical relationship between two items expressed in a quantitative form.
Ratios are expressed in three ways:
Time: In this type of expression one number is divided by another number and the quotient is taken as number of times. For example, expressing the attendance of 40 students present in a class of 80 students would be:
40 / 80 = 0.5 times
Percentage: It is expressed in Percentage. When the above example is expressed as percentage, it would be as under
40 / 80 x 100 = 50%
Pure: It is expressed as a proportion. In the above example, this would be as under.
40 / 80 = ½ = 0.5
This may also be expressed as 0.5:1.
The study of relationships between various items or groups of items in financial statements is known as ‘Financial Ratio Analysis’.
