Ratio Analysis
Definition
According to V. S. Bagad (2008), ratio analysis is a process by which figures in the financial statements are interpreted and analyzed using a mathematical computation (p8-1). Since financial reports contain raw data, ratio analysis provides the users a more detailed meaning and significant information on the company’s strengths and weaknesses. Meanwhile, Khan and Jain (2007) defined ratio analysis as “a systematic use of ratios to interpret …show more content…
As early as 300 B.C., works citing the necessity and uses of the ratio analysis was found through the book Elements, Book V, written by Euclid. In addition, Alexander Wall created and presented the ratio analysis system in 1909, which became the starting point of all the effort to develop a universal formula for the entire industry (Stenback 2013). Nevertheless, the technique gained popularity during the later part of the 19th century when the US economy began its transformation from industrialization to privatization, management acknowledged the need for the issuance of the financial statements (Horrigan, 1968, p284). However, it was Benjamin Graham, who was called the Father of Fundamental Analysis, who created the basic ratio analysis formula. His formula helps in defining company health and position, as well as the management concept (ASA