A technique that allows the small business owner to perform financial analysis by understanding the relationship between two accounting elements is called Ratio Analysis
Ratio analysis is the study or analysis of the line items included in the company's financial statements. It can be used to evaluate a number of aspects of a business, including profitability, liquidity, solvency, and operational effectiveness. There are five main categories of financial ratio analysis: profitability, solvency, liquidity, turnover, and earnings ratios. Ratio analysis is a useful tool for performance evaluation of your company's financial outcomes. These ratios make it easier to comprehend your company's financial statements. They can serve as a gauge for analyzing the financial health of your company as they reveal specific trends over time.
Hence, A technique that allows the small business owner to perform financial analysis by understanding the relationship between two accounting elements is called Ratio Analysis.
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