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Importance of Ration Analysis in Assessing Firm Performance

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Ratio analysis are very important to analyse the performance of this. This response critically analyse how ratio analysis helps in evaluating firm performance.

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Ratio analysis is an important aspect in the context of the evaluation of firm's financial and operational performance as it enables to determine the efficiency, profitability, liquidity, and solvency position of the firm, which are the major indicators of firm performance (Heintz and Parry, 2013). Ratio analysis predominantly involves the financial factor in the performance measurement, but it does not evaluate non-financial factors of a firm. Due to this, it is difficult to clearly assess the performance of the firm from this tool (Porter and Norton, 2016).

But at the same time, ratio analysis is a productive and efficient way of performance measurement, which aims to understand the relationship between the different variables of the firm ...

Solution Summary

Ratio analysis is important for evaluating the financial and operation performance of the firm. However, this method also has its limitations.

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