What is financial ratio analysis

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Financial ratio analysis is the process of evaluating a company's financial performance by comparing different financial ratios.

It involves analyzing financial statements to calculate ratios such as liquidity ratios, profitability ratios, and solvency ratios.
These ratios are then compared to industry benchmarks or historical data to determine the company's financial health.
For example, a high current ratio (current assets/current liabilities) indicates good liquidity, while a low debt-to-equity ratio (total debt/total equity) indicates low financial risk.
Financial ratio analysis is a useful tool for investors, creditors, and management to make informed decisions about a company's financial performance and future prospects.

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