ratio analysis

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The use of accounting ratios to evaluate a company's operating performance and financial stability. Such ratios as return on capital employed can be used to assess profitability. The liquid ratio can be used to examine solvency and gearing ratios to examine the financial structure of the company. In conducting an analysis comparisons will be made with other companies and with industry averages over a period of time. The analysis of ratios can indicate how well a company is run, the risks of financial insolvency, and the financial returns provided. See also financial-statement analysis.

Subjects: Economics.

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