Question

State two objectives of ratio analysis.

Hint:

Think of ratio analysis as “compressing” accounts into a dashboard for quick health checks and comparisons.

Answer 1

Step 1: Recall what ratios do.
Accounting ratios relate one meaningful figure to another (e.g., Current Assets to Current Liabilities) to create insight not apparent from raw totals.
Step 2: Objectives distilled.
1) \emph{Performance and position appraisal}: Liquidity (current/quick), long-term solvency (debt-equity), profitability (gross/net profit, ROI), and efficiency (turnover ratios). 2) \emph{Comparison and control}: Express results in a standardised form that aids trend analysis (across periods) and benchmarking (across firms/industry), enabling management decisions such as pricing, credit terms, financing mix, etc.
Step 3: Conclude.
Thus, ratios chiefly help in (a) evaluation of financial health and (b) meaningful comparison for decisions.
Final Answer: \[ \boxed{\text{(1) Evaluate financial health \quad (2) Enable comparison & decisions}} \] % Quciktip