What Is Ratio Analysis and Why Is It Important?
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Ratio analysis is a financial analysis technique used to evaluate a company’s performance, profitability, liquidity, and solvency by comparing different financial figures. It helps businesses, investors, and stakeholders understand how efficiently a company is operating and whether it is financially stable. Common types of ratios include liquidity ratios, profitability ratios, efficiency ratios, and solvency ratios. By analyzing these ratios over time or against competitors, decision-makers can identify strengths, weaknesses, and potential risks. Overall, ratio analysis plays a crucial role in strategic planning, investment decisions, and financial health assessment.
