Ratio Analysis

Ratio analysis means a forecasting technique for determining future staff needs by using ratio between  (1) some causal factor (like sale volume) and (2) the number of employees required (such as number of salespeople).

For example, suppose a salesperson traditionally generates $500,000 in sales. If the sales revenue to salespeople ratio remains the same, it would require six new salespeople next year (each of whom produces and extra $500,000) to produce a hoped-for extra $5 million in sales.

Ratio analysis expresses the relationship among selected items of financial statement data. A ratio expresses the mathematical relationship between ne quantity and another. The relationship is expressed in terms of a percentage, a rate, or a simple proportion.

Ratio analysis is used in all three types of comparisons, such as intracompany comparisons, industry average comparisons, and intercompany comparisons. Ratios can provide clues to underlying conditions that may be apparent from individual financial statement components.

Ratio Analysis is a forecasting technique for determining future staff needs by using ratios between sales volume and number of employees needed.

Method of analyzing financial information by comparing logical relationships between various financial statement items.


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