Describe Ratio Analysis Including Its Purpose, Application, and Interpretation

question 124

Essay

Describe ratio analysis including its purpose, application, and interpretation.

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Definitions:

Statement of Financial Position

Another term for balance sheet, showing the company's assets, liabilities, and equity at a specific point in time.

Operating Statement

Another term for an income statement, which shows a company's revenue and expenses over a specific period, resulting in the net profit or loss.

Net Income

A company's overall earnings post the deduction of all expenditures, taxes, and operational costs from its gross revenue.