What is the purpose of ratio analysis?

The purpose of ratio analysis is to evaluate a company's financial performance and position by analyzing relationships between various financial statement items. It enables investors, analysts, and management to assess profitability, liquidity, efficiency, and solvency, facilitating informed decision-making. By comparing ratiOS over time or against industry benchmarks, stakeholders can identify trends and areas for improvement. Ultimately, ratio analysis helps in understanding a company's financial health and operational efficiency.