Absolute ratios are stock and flow values which create the content of financial statements (balance sheet, income statement, cash flow):
- Stock values - they can be found in the balance sheet, where the value of assets and equity measured for a specific date
- Flow values - they can be found in the income statement and cash flow. They express the volume of (e.g.) sales which were achieved over a period of time
Analysis of extensive (absolute) ratios is performed by using absolute ratios:
- Horizontal Analysis (Trend analysis)
- Vertical Analysis
Use of absolute ratios in practice: Absolute indicators are the starting point for many other indicators. They form the basis for financial analysis.
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