CA Hemant Godse explaining the different types of ratios and its importance in business organizations. He summarized following factors as being important in ratio analysis:
• No ratio should be interpreted in isolation. Standards prescribed for different ratios are idealistic. Counter-effect of each ratio should be studied very carefully. Find out complimentary ratios and analyze all such ratios together.
• Ratio Analysis is not conclusive analysis. One requires other corroborative information to draw conclusions about financial health.
He explained the prerequisites of ratio analysis: an analytical mind, common sense, knowledge of industry, Balance Sheet with all its links, notes, reports, laws, and allied documents