Finance is regarded as the lifeblood of a business enterprise. In general, finance may be defined as a provision of money at the time it is wanted. “Business finance can broadly be defined as the activity concerned with planning, raising, controlling and administering of the funds used in the business”.


According to Solomon, financial management is concerned with the efficient use of an important economic resource, namely, capital funds.

According to Philippauts, “Financial Management is concerned with the management decisions the result in the acquisitions and financing of long term and short term credits for the firm. As such it deals with the situations that require selection of an specific assets as well as the problem of size and growth of an enterprise. The analysis of this decision is based on the expected inflows and outflows of funds and their effects upon managerial objectives.


Financial statement, also called financial report, refers to such statements as it contains financial information of the enterprise. They are over all general purpose entity statement as they report financial position and operation results of an enterprise business at the end of account period. As a matter of fact, these statements reflect the total of the summary of the books of account.


The financial statement provides the basic data for financial performance analysis.

Basic limitation of the traditional financial statement comprising the balance sheet and the profit and loss account is that they do not give all the information regarding the financial operations of a firm. Nevertheless, they provide some useful information to the extent the balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners equity, and so on. The profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the incurred during the year. Thus, the financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much can be learnt about a firm from a careful examination of its financial statements as invaluable documents / performance reports. The analysis of financial statements is, thus, an important aid to financial analysis.

The focus of financial analysis is on key figures in the financial statements and the significant relationship that exists between them. The analysis of financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. The first task of financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statement. The second step involved in financial analysis is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusions. In brief, financial analysis is the process of selection, relation, and evaluation.


Ratio analysis is one of the techniques of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm.

Ratios are relationship expressed in mathematical terms between figures, which are connected with each other in some manner. Obviously, no purpose will be served by comparing two sets of figures, which are not at all connected with each other. Moreover absolute are also unfit for comparison.

Ratios can be expressed in two ways:


When another divided one value, the unit used to express the quotient is termed as “Times”.


If the quotient obtained is multiplied by 100, the unit of expression is termed as “Percentage”.


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