The ratio is a particular thing which provides a relationship between two values. It is being calculated by dividing one value with another value. If there are two values such as $6000 and $9000 then, the ratio between the two would be at the level of 1:1.5. It is a simple fraction which works in a way that the organization identifies proper results.
There are three kinds of accounting ratios which are being used by the organizations. The accounting ratios include pure ratio, percentage ratio, and rate ratio. The relationship between two ratios is being identified as pure ratio. For example, if current assets of an organization and current liabilities are being identified that, the ratio is considered as pure ratio. An example of pure ratio used in the organization would be the current ratio. It is being identified as 2:1. Another example of pure ratio is the quick ratio. In his category of ratio, the ratio is found out by dividing quick assets by current liabilities. The example of the same is
Percentage ratio is a kind of ratio which is being used for identifying the percentage of a particular item in comparison to another item being taken into consideration at a particular point of time. One of the examples of percentage ratio is gross profit margin ratio. The details of the same are being provided below in the example.
References - Harper, T. (2011). Accounting Ratios and Methods. Routledge.