RATIO ANALYSIS –AN OVERVIEW:
Performance Evaluation forms the basis of the control system of management. Comparison of actual figures with the budgeted figures periodically will help the managers to ascertain the level of performance. Performance evaluation of employees is also important to undertake various decisions relating to their promotion avenues, training requires in future and to fix the salary also. There are various financial measures that can help in performance evaluation of cost, profit and investment centres. Ratio analysis is an important analytical to measure the performance.
Ratios help in determining the arithmetic relationship between the two figures or are simply defined as an expression of one number in terms of another. On the other hand ratio analysis is defined as the systematic use of ratio to interpret financial statements. Or in other words ratio analysis is a process of establishing ratios to make important organizational decisions. It consists of the following basic steps:
 Determine the primary objective of analysis.
 Select data from financial statements relevant for such analysis
 Calculating required ratios
 Compare the results of above calculated ratios with ratios of past or with ratios of another firm.
 Interpreting of ratios
TYPES OF RATIOS:
Various types of ratios are calculated to evaluate the performance. These are generally classified under the following heads on the basis of purpose they served:

Profitability ratios:
These ratios are calculated to enlighten the end results of business activities and are of utmost importance. It include the below said ratios:

Gross profit ratio

Operating ratio

Expenses ratio

Operating profit ratio

Net profit ratio

Return on capital employed

Return on shareholders fund

Earnings per share

Payout ratio

Coverage ratios:
These ratios indicate the extent to which the persons entitled to get interest or dividend as per agreed terms is safe. It includes ratios such as:

Fixed interest cover

Fixed dividend cover

Turnover (or performance or activity) ratios:
These ratios will indicate the usage of asset usage and are expressed in number of times rather than percentage. It includes the following ratios:

Capital turnover Ratio

Fixed assets turnover Ratio

Working capital turnover Ratio

Total assets turnover Ratio

Stock turnover Ratio

Financial ratios:
These ratios judge the financial position of concern from long term and short term solvency point of view.
Liquidity ratios: It generally includes the following ratios:

Current Ratio

Liquid Ratio

Absolute liquidity Ratio

Working capital Ratio
Stability ratios: It generally includes the following ratios:

Fixed assets Ratio

Ratio of current to fixed assets

Debt equity Ratio

Proprietary Ratio

Control ratios:
These ratios help the management in determining that whether deviation in actual and budgeted performance is favourable or unfavourable. It includes the following ratios:

Capacity ratio

Efficiency ratio

Calendar ratio