RATIO ANALYSIS Definition

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RATIO ANALYSIS involves conversion of financial numbers for a firm into ratios. Ratio analysis allows comparison of one firm to another. Since ratios look at relationships inside the firm, a firm of one size can be directly compared to a second firm (or a collection of firms) which may be larger or smaller or even in a different business. Financial Ratio Analysis is a method of comparison not dependent on the size of either firm. Financial Ratios provide a broader basis for comparison than do raw numbers. In the VentureLine database the comparison is conducted against the industry (SIC Code) in which each particular listing is associated.

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CURRENT ASSETS are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, US government bonds, inventories, and prepaid expenses.

AVERAGE SETTLEMENT PERIOD is calculated: For Debtors = Trade Debtors X 365 days / Credit Sales
For Creditors = Trade Creditors X 365 days / Credit Purchases.

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