Ratio Analysis
Introduction
Ratio analysis is one of the most useful techniques of analysis or interpretation of the financial statement. The term ratio may be defined as an arithmetical expression of the relationship of one number to another number. In other words, we can say that ratio is an expression of the quantitative relationship between two numbers. There are a number of ratios for helping in the better understanding of financial strengths or weakness of the firm. The ratio can be calculated from the information given in the financial statement. The managerial ratio analysis such as helpful in decision making; helpful in financial forecasting and planning; Helpful in communicating; helpful in coordination; helpful in control; etc.
Classification of ratio
The following chart depicts the Functional classification or classification the basis of test from which these ratios are calculated:
Functional classification or classification the basis of test
Liquidity Ratio  Long term solvency and leverage ratio  Activity ratio  Profitability ratio 
Current ratio
Liquid ratio Absolute ratio Interval measures
Stock turnover ratio Debtors turnover Payable turnover

Debt/ equity ratio
Debt to total capital ratio Interest coverage Cash flow/ debt Capital gearing

Stock turnover ratio
Debtors turnover Payable turnover Fixed assets turnover ratio Capital employees turnover ratio Total assets turnover ratio Working capital turnover ratio

In relation to sale
Gross profit ratio Operating profits ratio Operating ratio Net profit ratio Expense ratio In relation to investment Return on equity capital Return on investment Return on capital Return on equity capital Return on total reserve Earnings per share Price – Earnings ratio 