Financial ratio analysis is is a process of determining determining and interpreting relationships between the items to financial statements to provide a meaningful understanding of the performance and financial position of an enterprise. Ratio analysis is an accounting tool to present accounting variables in a simple, concise, intelligible and understandable form. Ratio analysis is a study of relationship among various financial factors in a business. Thus, it seeks to measure the value of the entity and purpose which it pursues, financial analysis develops the steps of collecting, shaping and treatment of range of management man agement information which may clarify the wanted diagnosis and prognosis. Many researchers have studied financial ratios as a part of working capital management; however , very few of them have discussed the working capital policies in specific. Some earlier work by Gupta & Heffner (1972) eamined the differences in financial ratios averages between industries. The conclusion of both the studies was that differences do eist in mean profitability, profitability, activity, leverages leverages and li!uidity ratios amongst industry groups. Pinches et al. (1973) used factor analysis to develop seven classifications of ratios, and found that classifications were stable over the "#$"%"#&# time periods. Chu et al. (1991) analysed the hospital sectors to observe the differences of financial ratios
groups between hospital sectors and industrial firms sectors. Their study concluded that financial ratios groups were significantly different from those of industrial firms' ratios as well these ratios were relatively stable over the five years period. ( significance relationships for about half of industries studied indicated that results might vary from industry to industry. Sathamoorthi (2002) focuse on !oo corporate !o"ernance an in turn effecti"e mana!ement of #usiness assets. )e observed that more emphasis is given to investment in
fied investments in fied assets both in management area * research. )owever, effective management working capital has been receiving little attention and yielding more significant results. )e analysed selected co%operatives in +otswana for a period of "##%"##- and concluded that an aggressive approach has been followed by these firms during all four years of study. $oron %issim & Stephen H Penman (1999) n his research article on financial performance he
has pointed that this paper outlines a financial statement analysis for use in e!uity valuation. Standard profitability analysis is incorporated, and etended, and is complemented with an
analysis of growth. The perspective is one of the forecasting pa yoff to e!uities. So financial statement analysis is presented first as a matter of /erforma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. 'ohn '. il *.+. Su#raman,am & +o#ert -. Halse, (200) n his research article on
financial $0 performance he has pointed that he have said that the financial statement analysis is the application of analytical tools and techni!ues to general purpose financial statements and related data to derive estimates and inferences useful in business analytics. Financial Statements analysis reduces reliance on hunches, guesses an d intuition for business decisions. t decreases the uncertainty of business analysis. /.. Pane, (2007) n his research article on financial performance he h as pointed that the
financial statements contain information about the financial conse!uences and sources and uses of financial resources, one should be able to say whether the financial condition of a firm is good or bad; whether it is improving or deteriorating. 1ne ca n relate the financial variables given in financial statements in a meaningful way which will suggest the actions which one may have to initiate to improve the firms' financial condition. +achchh inai (2011) n his research article on financial performance he has pointed and
suggested that the financial statement analysis involves analy2ing the financial statements to etract information that can facilitates decision making. t is the process of ev aluating the relationship between components parts of the financial statements to obtain a better understanding of an entity's positions and performance. Pri,aas (ar 2012) n his research article on financial performance he has pointed that
Financial statement analysis is the process of eamining relationships among financial statement elements and making comparisons with relevant information. t is a tool in decision making processes related to stocks, bonds and other financial instruments. From the above literature review, it is evident that, the financial performance depicts the efficiency of organi2ation. (long with that financial statements are very useful for decision making in the company by +oard 1f 3irectors and management. t is also helps to know the prosperity of the company with the profitability.
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The process of reviewing and evaluating a company's financial statements4Such as balance sheet and trading and profit and loss statement5, thereby gaining an understanding of the financial health of the company and enabling more effective decision making. Financial statement record financial data ; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties. Financial statement are very useful as they serve varied affected group having an economic interest in the activities in the business entity. The purpose served by financial statement are as follows6
The basic purpose of financial statement is communicated to their interested users,
!uantitative and ob7ective information are useful in making economic decision. Secondly, financial statements are intended to meet the speciali2ed needs of conscious
creditors and investors. Financial statements are prepared to provide reliable information about the earning of business enterprise and it ability to operate of profit in future. The users who are interested in this information are generally the investors, creditors, suppliers and
employees. Financial statements are intended to provide the base for ta assessments. Financial statement are prepare in a way a provide information that is useful in predicting
the future earning power of the enterprise. Financial statements are prepared to provide reliable information about the changes in
economic resources. Financial statements are prepared to provide information about the changes in net
resources of the organi2ation that result from profit directed activities. Thus, financial statement satisfy the information re!uirements of a wide cross%section of the society representing corporate managers, eecutives, bankers, creditors, shareholders, investors, laborers', consumers and government institution.
