Traditionally, ratios are classified on the basis of financial statement i.e., profitability ratios, activity ratios, liquidity ratios and solvency ratios. Profitability ratios are calculated on the basis of profit and loss account; balance sheet is taken as basis for calculating the liquidity and solvency ratios. For determining efficiency, productivity of resources, ratios were calculated on the basis of profit and loss account and the balance sheet. This classification was found to be crude and unsuitable for determining the profitability and financial position of the business concern. In order to achieve the purpose and to make ratios serve as a tool for financial analysis, ratios are classified as:
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