06: Analytical accounting tools

Ratio analysis can also be used on data to enable managers to look at key measures of the business, such as solvency and short-term survival prospects (liquidity ratios), the adequacy of funding in relation to long-term debt (capital structure ratios), the operating efficiency of the business in non-financial terms (activity and efficiency ratios) and profitability ratios, which can measure overall profitability as well as how well your business is using its assets and covering overhead costs.