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Introduction to Financial Ratio Analysis

 Introduction to Financial Ratio Analysis   Free Tutorial Download

What Is Ratio Analysis?

Ratio analysis is a quantitative method of gaining insight into a company’s liquidity, operational efficiency, and profitability by studying its financial statements such as the balance sheet and income statement. Ratio analysis is a cornerstone of fundamental equity analysis.

KEY TAKEAWAYS

  • Ratio analysis compares line-item data from a company’s financial statements to reveal insights regarding profitability, liquidity, operational efficiency, and solvency.
  • Ratio analysis can mark how a company is performing over time, while comparing a company to another within the same industry or sector.
  • While ratios offer useful insight into a company, they should be paired with other metrics, to obtain a broader picture of a company’s financial health.

 

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