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What is Ratio Analysis ?

Ratio Analysis refers to a methodology that is used to interpret financial statements like Balance Sheet, Profit and Loss Account by developing ratios between distinct figures in these statements.

For example, a popular ratio called Price-Earnings Ratio, is computed by dividing the price of the share by earnings per share. Both these figures are available in the Financial Statements.

Ratio Analysis is performed by not only Investors but also Creditors and other organizations that would like to evaluate the financial strength of a corporation.


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