CHAPTER ONE
1.1 INTRODUCTION
The Term “Ratio Analysis” could be described as the analysis of financial statement in order to judge the performance of the COMPANY or group of companies.
The “Investment Decision” Means the allocation of funds to invest proposal whose benefits are to be realized in the future.
The combination of the two terms described above or the relationship between them is basically the purpose of this work. That is the impact of ratio analysis as a tool for investment Decision. The three fundamental statement requires are the income statement, the balance sheet, and the statement of changes in financial position. The analysis of these statement combined with the preparation and analysis of related financial statement are required to as financial statement analysis.
To make rational decision in keeping with the objective of a firm, the financial management his certain analytical tools. The company itself and suppliers of capital, creditor and investor all undertake financial analysis. The form’s purpose is not only internal control but also better understanding of what capital supplier seek in financial condition and performance from it. To evaluate, the financial analyst needs certain Yardsticks frequently used in ratio or index relating two pieces of financial data each other. For instance, the relationship between gross profit and sales is expressed by the accounting ratio know as gross profit % or gross margin, which is computed as follows.
GROSS PROFIT % = Cross Profit x 100 = x%
Sales 1