Practical Use Of Ratios And Proportions

Ratios and proportions even though abstract in nature are very useful. Indeed such mathematical tools are frequently adopted for business applications. For example, a financial analyst whose job entails examining the financial performance and position of organizations and provide valuable recommendations for investment decisions, frequently utilize ratios. Indeed financial statements are commonly examined by the application of financial ratios, which utilize ratio mathematical techniques.Such approach to company valuation is very useful and effective in this practice. The financial controller is another who frequently adopts ratios and proportions. For instance, it is customary that the financial performance of department stores is portrayed according to the separate divisions of the retail shop.

In order to present the profit and loss account in such manner proportions are used by the accountant to apportion general expenses between the respective departments.For example, if a department store holds two separate departments, Furniture and Kitchen Appliances. Certain general expenditure would be paid by the corporation during the operations of the business, like electricity, rent of premises and more. In order to assign a part of such costs to each department, applicable proportions would be used. Such as, rent will be distribution in accordance to the proportion of floor area occupied by each department.In a partnership, ratios and proportions are also adopted in order to distribute the profits made between the respective partners.

A vast number of ways are adopted, all of which use ratios and proportions. For instance, profits may be distributed in line with the capital proportion of each partner or an agreed ratio is set at the inception of the partnership. As we can see these mathematical tools are very important in business to facilitate the way information is conveyed and assets deployed.


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