Ratio Analysis

Ratio Analysis is a quantitative method of assessing a company’s financial performance by calculating and interpreting various financial ratios derived from its financial statements. These ratios, including liquidity, profitability, leverage, and efficiency ratios, provide insights into a company’s operations and financial health. For example, the current ratio measures liquidity by comparing current assets to current liabilities, while the return on equity ratio assesses profitability by comparing net income to shareholders’ equity. Ratio analysis aids investors, creditors, and management make informed decisions by highlighting strengths, weaknesses, and trends in the company’s financial position.