CHAPTER ONE

INTRODUCTION

1.1           BACKGROUND OF THE STUDY

Interpretation of account is the art and science of translating the figures, this is such a way as to reveal the financial strengthen and weaknesses of a business.

Ratio analysis is a powerful tool of accounting analysis. A ratio is defined as the indicated quotient of two mathematical expressions as the relationship between two or more things.

In accounting analysis, a ratio is used as index or yardstick for evaluating the financial position and performance of a firm or company.

More so ratio analysis involves company figures in terms of relation to another figure. It is computed by dividing one number, that is it base into another ratio analysis facilitates the evaluation of accounting information by educating such data into a smaller unit. One of the utility of accounting analysis is that it is not affected by the relative size of the activities or department being compared. Thus it allows for comparison between small and large firm within the same industry. Ratio analysis in addition to providing us the means by which we test for the efficiency of various features of the business as presented by the financial statement, it also make it possible for the management to compare the performance of a firm with those of other firm in the same industry and within the same organization between different years.