Essay about Ratio and Ratio Analysis

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Week 2 Learning Team Reflection
Jasmine Crawford, Nancy Diaz and Scott Turley
ACC/561
May 21, 2015
Rick Freeman
Week 2 Learning Team Reflection
The week two learning team reflection is a discussion focused on the differences and usages for comparative and ratio analysis. The use of multiple sets of data for comparison to detect trends is comparative analysis. Comparative analysis demonstrates trends within an organization. With continued use, Comparative analysis can identify diminishing trends through the use of quarterly data analysis. Ratio analysis also helps to establish trends, and make financial comparisons that assist management in making healthy financial decisions. Also, ratio analysis identifies strengths and weaknesses within an organization that allows management to make strategic decisions that benefit the success of the operation.
According to Wiley (2013), “Information from financial statements can be gathered by examining relationships between items on the statements and identifying trends in these relationships” (Chapter 13). The relationships are numerically expressed in percentages or ratios, then trends can be recognized with a comparative analysis. With comparative analysis, the exact same data is provided for two or more different periods so similar data can be compared. Ratio analysis only provides a glimpse, due to the analysis being for a single given period. With comparative analysis a company can determine whether a trend is diminishing or growing from year to year and by what proportion.
According to Lohrey (2015), “Comparative analysis is the item by item comparison of two or more comparable products, processes, alternatives, systems, sets of data, or qualifications” (Comparative Analysis). For example, in accounting, variations in the items of a financial statement over a number of accounting periods can be compared to detect emergent trends in the organization’s results and operations.
On the other hand, ratio analysis is a significant technique of financial analysis that converts quantities into ratios to be compared. Current ratios can be compared to past ratios along with ratios of other companies in similar or different industries. Ratio analysis helps determine positive and negative trends. A company can also use ratios to discover their strengths or weaknesses, as well as the overall
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