ABSTRACT
Book-keeping is not a goal in itself. It was not invented to create jobs for book-keepers or accountants. It is just a means to obtain relevant information for the managers and stakeholders of the company. This information can be evaluated by ratio analysis. The concept of comparisons is crucial, since this identifies trends in the business and allows action to be taken. A ratio is a kind of shorthand for a business’s financial position or operations expressed in a number. Its first purpose is to identify areas that need further investigation. It gives an indication only, not the story behind the numbers. This chapter familiarises students with the concept of ratio analysis, beginning by listing out the components of the ratio analysis along with their definitions. It also includes multiple exercises that help students try themselves and prepare the ratio analysis for a set of financial scenarios.
