 ## what-is-accounting-ratio-

Accounting Ratio

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.

Types

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.

The ratio is a kind of ratio which identifies the number of times at particular thing would be there in comparison to another area. This ratio is being used in the course of asset turnover ratio and other kinds of ratios. One of the examples of this particular category of ratios is the example  regarding the following. Here, the cost of goods sold is \$12000 and the average stock is \$4000 therefore, inventory turnover ratio of the organization is 3 times.

References - Harper, T. (2011). Accounting Ratios and Methods. Routledge.