This study investigates the impact of inflation to the various stakeholders identified for this purpose are the Customers, Suppliers, Employees, Financial Institutions, Government, Shareholders and the Management. Inflation may well be demarcated as increase in the general price level involve in the influences of production whereas deflation causes fall in the general price level. It inclines to fluctuate due to various reasons and cause two types of economic conditions, one is Inflation and another is Deflation. Price remains constant over a period of time. This study derived valuable information and results showed that with the impact of inflation, there is significant difference in liquidity, profitability and activity ratios. In this study the Current Purchasing Power method, financial ratio analysis and different statistical tools like descriptive statistics and t-test have been employed to study the impact of inflation on major financial ratios. The ratios were calculated on both historical and adjusted numbers of financial statements to form two sets of ratios. The financial statements of 42 manufacturing companies covering 7 industrial sectors have been restated in current purchasing power for a period of 5 years (2004-05 to 2008-09). This study investigates the impact of inflation accounting application on companies' financial performance and financial position by analyzing financial ratios. The price floatation cause two types of economic conditions, one is Inflation and another is Deflation. Price remains constant over a period of time and fluctuates due to various reasons.
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