What are the advantages of Ratio Analysis?

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Advantages of ratio analysis are:

  1. Shareholders and prospective investors will analyse ratios for making decisions regarding investment and disinvestment.
  2. The credit rating agencies will analyse the ratios of a firm to give the credit rating to the firm.
  3. Government agencies will analyse the ratios of a firm for review of its performance.
  4. Bankers who provide working capital will analyse ratios for appraising the creditworthiness of the firm.
  5. Financial institutions that provide long-term debt will analyse ratios for project appraisal and debt servicing capacity of the firm.
  6. Financial analysts will analyse ratios for making comparisons and recommending to the investing public.

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