Answer :
Answer:
Ratio analysis
Explanation:
Financial statements are used to show the assets, liabilities, revenues, expenses, and owners equity of a business entity within a given time frame.
Income statement is revenue less expense within a given period. While the balance sheet shows the financial position of a business at a particular point, that is its assets, liabilities, and owner equity.
Information form financial statements are analysed by the use of ratio analysis to gain a better understanding of financial condition of an organisation.
Ratio analysis compares the magnitude of line items within financial statements to determine liquidity, profitability, solvency and operational efficiency of a business.
For example current ratio shows how well a business can use its current assets to settle its current liability, this is a liquidity ratio.
Answer: Ratio Analysis
Explanation;
Ratio analysis is a very important method of financial analysis that enables one to make inferences and see relationships from the data presented by a company in it's financial statements.
Most ratios are divided into 5 different types being;
- Profitability
- Liquidity
- Activity
- Debt, and
- Market
An example of a Liquidity ratio would be the Current Ration which divides Current Assets by Current Liabilities to see if the company has enough liquidity to pay off current liabilities.