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Introduction:
Financial analysis is an essential aspect of evaluating a company's financial performance and making informed decisions. Class 12 commerce or accounting students often learn about various tools and techniques used in financial analysis. These tools help in assessing a company's profitability, liquidity, solvency, and overall financial health. This write-up provides an overview of some commonly used tools for financial analysis.
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Ratio Analysis:
Ratio analysis involves calculating and interpreting various financial ratios to assess a company's performance and financial position. Some important ratios include:
Profitability Ratios: These ratios measure a company's ability to generate profits from its operations, such as gross profit margin, net profit margin, return on assets (ROA), and return on equity (ROE).
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Liquidity Ratios: Liquidity ratios assess a company's ability to meet its short-term obligations. Common liquidity ratios include the current ratio and the quick ratio.