Why is ratio analysis important?

Ratio analysis is open to analyze the financial performance and financial position of an entity, It helps the decision makers to take future decisions for the entity.

Ratios are critical quantitative analysis tools. One of their most important functions lies in their capacity to act as lagging indicators in identifying positive and negative financial trends. The

Yes it shows important indicators of liquidity and profitability and indebtedness of the company

Financial Ratio Analysis is important that

1.   Compare to other entities  
2.   Examine a firm's performance relative to
3.   The aggregate economy
4. Its industry or industries
5. Its major competitors within the industry
6. Its past performance (Time -series analysis)

There are multiple ratio analysis which indicates the financial performance to any of the company, organization or firm, depending on their periodic and as of the date financial statements.

Ratio analysis is important to judge according to industry standards, this company and its competitors or other mature companies in the same industry.

Profitability ratios are simple analysis against revenue, starting with Gross Profit Margin %.  If GP% is <% then how will the company survive and pay the operating expenses out of <% mark-up, there is only going to be only one result, long term losses.  The GP% also is dependent on a manufacturing or service industry.  Manufacturing industry a GP% of% is perfect as the costs are weighted in the Cost of Sales line item, whereas a service industry, the GP% must be at least% as cost is in operating expenses, salaries and rental.

Liquidity ratios are a guideline to how well the company is able to cover its liabilities, both current and long term type.

Ratio analysis enables the company measure its overall financial state of its business.

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. This type of analysis is particularly useful to analysts outside of a business, since their primary source of information about an organization is its financial statements. Ratio analysis is less useful to corporate insiders, who have better access to more detailed operational information about the organization.

Ratios are critical quantitative analysis tools. One of their most important functions lies in their capacity to act as lagging indicators in identifying positive and negative financial trends. The information a trend analysis provides allows to you to make and implement ongoing financial plans and, when necessary, make course corrections to short-term financial plans.