Top Ratio Analysis Types to Assess Financial Performance
Ratio analysis is a vital tool for evaluating a company’s financial health. It helps investors, managers, and stakeholders make informed decisions by examining relationships between key financial metrics. Common types include liquidity ratios, which measure a company’s ability to meet short-term obligations; profitability ratios, which assess earnings efficiency; leverage ratios, indicating financial risk and debt levels; and efficiency ratios, reflecting how effectively resources are utilized. By regularly performing ratio analysis, businesses can identify strengths, weaknesses, and trends, enabling strategic planning, risk management, and sustainable growth in today’s competitive market.