definition of ratio analysis

ratio analysis
Single most important technique of financial analysis in which quantities are converted into ratios for meaningful comparisons, with past ratios and ratios of other firms in the same or different industries. Ratio analysis determines trends and exposes strengths or weaknesses of a firm.

Financial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance.

A good financial analyst will build in financial ratio calculations extensively in a financial modeling exercise to enable robust analysis. Financial ratios allow a financial analyst to: