Ratio analysis of financial statements

The twentieth century has been witness to a phenomenal rate of growth in accounting. To a large degree this growth can be attributed to large scale production, a characteristic of this complex industrial era. More accountants than ever before are engaged in the tasks of recording, classifying, summarizing and interpreting financial data. Financial statements are the end products of an accountant\u27s task. For every accountant employed in the construction of a statement, there are scores of people interested in the analysis and use of such statements, particularly the balance sheet and income statements. These persons include creditors, bankers, investors,executives and the general public. A financial statement which has been carefully prepared must be analyzed and interpreted in the same manner if worthwhile results are to be obtained. Along with the rapid growth of accounting, there has been a continual improvement in the methods used in financial statement analysis. These methods normally include the formulation of significant relationships existing between the main parts of a statement. This writing will be concerned with the presentation and explanation of significant ratios commonly used in the analysis of the balance sheet and income statements. These ratios may be used to indicate or to infer the financial condition of a company. Emphasis will be placed on the industrial corporation. Prior to the presentation or ratios, a brief description of the general nature o! the statement to be analyzed will be given. However, there will be no attempt to analyze the statement in its entirety; only the essential component parts will be scrutinized. It must be realized that not all types of analysis discussed herein will be applicable to each line of industry or to all financial statements. Two apparent reasons for this are: (1.) there is a great variety in financial statements, and (2.) the detailed information needed for complete analysis is not always availabl