What Are Financial Ratios?

Financial ratios are business management and accounting tools that can be used to provide insight into the financial position of a business.

The ratios themselves are analysis tools in the form of calculations that show such organisational facets as profitability, liquidity, solvency and market value.

Financial ratio analysis is carried out on data such as a company balance sheet, income statement or cash flow statement. This analysis can help business managers make financial decisions that show how financially healthy their business is prior to making strategic decisions or to report to senior management or investment partners.