Ratio analysis is a useful way of gaining a snapshot of an organization. It is a transparent system of analysis reporting. These ratios can then be analyzed to identify an organization's strengths and weaknesses as well as useful insights. One thing that is important to realize is that the ratios lack the backing of financial theory. Theory says what should be the case or value. In the case of financial ratios, there is no way to identify a "theoretically best" value for any of these ratios. Essentially, financial ratios are simply nothing more measures that have been developed and evolved over time. They are therefore imperfect measures and need to be treated that way. It is usual that financial ratios are grouped together by their purpose in the ledger. There are a host of different classifications. However, the most commonly used classifications are liquidity, debt, activity. Typically one would not calculate ratios in all of or for just a single government agency. Rather, one would approach the ratio analysis from the perspective of an individual interested in...
Though these subjects were previously primarily the province of business and accounting, these fields are now becoming more and more a part of public administration theory and practice as well. Responsibility is demanded by the public and must be provided to them by public servants using financial condition analysis and financial statement analysis to provide transparency and accountability.
Works Cited
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Financial ratios. (2010). Retrieved from http://www.netmba.com/finance/financial/ratios/
Fridson, M., & Alvarez, F. (2009). Financial statement analysis: a practitioner's guide. New York, NY: John Wiley and Sons.
