1. Knowledge of profitability:
Ratio analysis helps to know about the company’s profitability. Through ratio analysis the company can know whether the company is able to earn estimated profit by utilizing its available resources or not.
2. Knowledge of liquidity:
Ratio analysis also helps to know whether the company has sufficient assets to pay its short term and long term liabilities or not.
3. Inter firm comparison:
Ratio analysis helps to compare between two or more companies so that the company can know that whether they are performing better than others or not.
4. Guide for future:
By analyzing the data from the ratio analysis the company can make effective plan for its future.
5. Knowledge of operation efficiency:
Ratio analysis shows that whether the company’s purchase, sales, inventory, credit sales, collection of receivables etc. are effective or not.