How to Configure Ratios

Configure's dictionary meaning is to give shape or try to best for calculating optimized answer according to our requirement. Configure the ratios means to calculate the ratios on your calculator and try to change the figure and check whether answer is more close of our requirement. For example, we need our current ratio 3 :1, so we will change some current assets or change some current liabilities and then check the answer.

Ok, today, we are teaching you the steps of configuring any ratio fastly.

Steps :

1. Remember the Formula of Accounting Ratios

There are lots of accounting ratios which you can configure. These may be 40 to 70. So, it will be very difficult for you to remember all these accounting ratios. So, best way of remembering accounting ratios is to write ratios under some categories. For example, liquidity ratios, solvency ratios, efficiency ratios and long term financial position's ratios. Now, you can remember each ratio's formula.

2. Use of Calculator 

Now, you have to use the calculator and calculate the first part of ratio. For example for calculating current ratio, we need to calculate the total of all current assets. In these we will include cash, bank balance, inventory, sundry debtors, outstanding incomes and advance expenses. Take a paper and note it. Now, calculate the second part of ratio. For example, we will total of all current liabilities. In current liabilities, we will add sundry creditors, bill payable, outstanding expenses, advance incomes. After calculate its total, write it on the paper. Now, divide total current assets with current liabilities. You will find the answer of your current ratio. Like this, you can find any accounting ratio on the calculator.

3. Configure the Ratio

Now, check whether the given ratio is most suitable for your decision. Try to change the value in above or below parts of different ratio and get answer. This is very interesting. You can get more options in the answers when you will change the main values. Configuration of the ratio will be helpful for reaching the best ratio. Configure the ratio will also necessary for making our financial position more optimum for getting big loan. 


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Accounting Education: How to Configure Ratios
How to Configure Ratios
Accounting Education
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