What are financial ratios used for?

The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more. Financial ratios are grouped into the following categories:

Why should a company do a ratio analysis?

It unlocks powerful insights from a company’s financial statements, enabling sound decision-making, better use of resources, and strategic planning. Who Needs to do a Ratio Analysis? Anyone with a vested interest in the financial performance of a company can benefit from doing a ratio analysis.

What is ratio analysis?

Ratio analysis is a method of examining a company's balance sheet and income statement to learn about its liquidity, operational efficiency, and profitability. It doesn't involve one single metric; instead, it is a way of analyzing a variety of financial data about a company. Ratio analysis is a cornerstone of fundamental equity analysis.