What is the nature of ratio analysis?

Ratio analysis is a quantitative method used to evaluate the financial performance and stability of a company by comparing various financial metrics. It involves calculating ratiOS from financial statements—such as the balance sheet and income statement—to assess aspects like profitability, liquidity, efficiency, and solvency. This analytical tool helps stakeholders, including investors and management, make informed decisions by providing insights into operational effectiveness and financial health. Ultimately, ratio analysis facilitates benchmarking against industry standards and historical performance.