Thus, if one quantity increases, the other will also increase and vice-versa. When two variables, x and y, are directly proportional, it is written as x ∝ y. To understand the concept of ratio and proportion, go through the difference between ratio and proportion given here. The definition of ratio and proportion is described here in this section. In real life also, you may find a lot of examples such as the rate of speed (distance/time) or price (rupees/meter) of a material, etc, where the concept of the ratio is highlighted. In this formula, “Total Revenue” represents all the money a company generates from its sales or services.

Moreover, its use is widespread in many industries, including banking, accounting, and finance. Banks use ratios to assess the creditworthiness of borrowers, while investors use ratios to evaluate the potential returns on investment. Accountants use ratios to analyze financial statements and identify areas for improvement, such as reducing costs or increasing revenue. It is similar to when you look at your friend’s report card and notice they got an “A” grade in English but a “D” in Math. Logically you will think that your friend could use some help in Math.

How to Calculate a Ratio of a Number

Register with BYJU’S – The Learning App and get solutions for many difficult questions in easy methodology and followed by the step-by-step procedure. Out of the total students in a class, if the number of boys is 5 and the number of girls is 3, then find the ratio between girls and boys. Since both the ratios are equal, they are said to be in proportion. Let us learn here some rules and tricks to solve problems based on ratio and proportion topics.

Let us take the example of the latest annual report of Apple Inc. for 2023 to illustrate the calculation of different ratios used in ratio analysis. Based on the given information, let us perform Apple ratio analysis by calculating its liquidity, solvency, efficiency, and profitability ratios for the year 2023. Understanding accounting ratios and how to calculate them can make you an effective finance professional, small business owner, or savvy investor. The ratios can help provide insights into financial areas that others may be missing or that you can plan to avoid in your own business. As a manager, you may also need to understand the accounting ratios being explained to you by your accountants.

Example: There are 5 pups, 2 are boys, and 3 are girls

The person on the left will get $5 and the person on the right will get $15. Both numbers add to make the total of $20 but $15 is three times larger than $5. A ratio table is a list containing the equivalent ratios of any given ratio in an ordered form.

The amount of numbers in the ratio tells us how many groups the quantity is being shared between. The size of each number tells us the proportion of the total amount each group gets. Given a ratio, we can generate equivalent ratios by multiplying both the antecedent and consequent of the ratio by the same value. In certain situations, the comparison of two quantities by the method of division is very efficient. We can say that the comparison or simplified form of two quantities of the same kind is referred to as a ratio. This relation gives us how many times one quantity is equal to the other quantity.

Ratios and Proportion

In such cases, the ratios are further reduced or simplified, similar to what we do in case of fractions. If we multiply and divide each term of ratio by the same number (non-zero), it doesn’t affect the ratio.

Thus, x and y in the first ratio and w in the second ratio separately should be of the same kind. The ratio obtained by scaling a current ratio through multiplication or division is called an equivalent ratio. A ratio is often scaled up or down by multiplying or dividing the antecedent and consequent by the same number. The numerator (the first term) is called the antecedent and the denominator (the second term) is the consequent. Multiplying or dividing the same numbers on both numerator and denominator, we will get the equivalent ratio.

Financial Ratios

Let us understand the ratio formula, and how to find the ratio between numbers, in detail in the following sections. This article summarized all of the most commonly used ratios and metrics in financial analysis. Take note that many of the ratios are often expressed in percentage – just multiply them by 100%.

• Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.
• The trick with ratios is to always multiply or divide the numbers by the same value.
• In real life also, you may find a lot of examples such as the rate of speed (distance/time) or price (rupees/meter) of a material, etc, where the concept of the ratio is highlighted.
• In this article, the students get a clear vision of these two concepts with more solved examples and problems.
• Let us take the example of the latest annual report of Apple Inc. for 2023 to illustrate the calculation of different ratios used in ratio analysis.

They can better help you make decisions and understand the overall health and profitability of your division. The ones listed here are the most common ratios used in evaluating a business. In interpreting the ratios, it ratio formulas is beneficial to have a basis for comparison, such as the company’s past performance and industry standards. Accounting ratios come with wide-reaching use and necessity, even for those of us who are not accountants.