Financial ratios variance analysis is a tool used by financial managers to analyze and interpret the financial information of a company. It is a method of assessing how different financial ratios from different periods of time compare to one another. By understanding the variance between the different financial ratios, managers are able to make informed decisions about a company’s financial performance and strategies.

Financial ratios are used to measure the performance of a company in different areas such as profitability, liquidity, efficiency and debt. These ratios can be compared over different periods of time to identify trends and areas of strength and weakness. Financial managers use financial ratios variance analysis to gain insight into how the ratios are changing over time and how they compare to each other.

For example, if a company’s current ratio is higher than the previous period then this could indicate that the company is in better financial health. Similarly, if the cash flow is higher than the previous period then this could indicate that the company is able to generate more revenues. On the other hand, if the debt ratio is higher than the previous period then this could indicate that the company has taken on additional debt and may be in a less financially sound position.

Financial ratios variance analysis is important for financial managers to understand the financial performance of a company and to be able to make sound decisions. By understanding the variance between the different financial ratios, managers can identify areas of strength and weakness and identify areas that need improvement.

Additionally, financial ratios variance analysis can also be used to compare the performance of one company to another. This allows managers to make informed decisions about which company is better positioned for success and which company may be struggling.

Financial ratios variance analysis is a useful tool for financial managers to assess the performance of a company. By understanding the variance between the different financial ratios, managers are able to make informed decisions about the financial health of a company and what strategies may be needed to achieve success.