Meaning of accounting ratios

Meaning of accounting ratios

Ratio is a mathematical expression of relationship between two related or interdependent items. It is the numerical or quantitative relationship between two items. It is calculated by dividing one item by the other related item. When ratios are calculated on the basis of accounting information, these are called ‘accounting ratios’.

Accounting ratios can be expressed in any of the following forms:

(i) Pure: It is expressed as a quotient. Example: 2 or 2:1.

(ii) Percentage:  It is expressed in percentage. Example: 25%.

(iii) Times:It is expressed as certain number of times of a particular figure. Example: 4 times.