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This article is the continuation of the two part article on learning ratio analysis. The first part of the article which was posted few days ago discusses the meaning of ratio analysis and other terms of ratio analysis like financial statement analysis and the technique being used. Now we are going to continue learning about the two other techniques of financial statement analysis which is the Profitability ratio and the Solvency Ratio.

Profitability Ratio
This is the company’s ability to gain profit.

Rate of Return or Return on Investment – measures the net income generated by each dollar of investment.

Ratio Analysis also known as Financial Statement Analysis is one important topic in Cost Accounting and an integral part of Management Advisory Services. Most students are having difficulty in dealing with this topic because of the many formulas to remember. Given below are the key points one must remember in financial ratio analysis and is the easy way to study the financial statement analysis.

What is Ratio Analysis?
Ratio Analysis is the process of identifying company’s financial strengths and weaknesses. This is done by properly establishing relationships between financial accounts in the financial statements namely the statement of financial position and statement of comprehensive income.