Summary
Ratios are financial metrics used to evaluate a company’s performance, financial health, and valuation by comparing different figures from its financial statements.
They help investors interpret financial information more effectively and compare companies across different periods or within the same industry.
Why it matters
Ratios provide insights into key areas such as profitability, liquidity, efficiency, and valuation. They help investors assess how well a company generates returns, manages its resources, handles obligations, and is valued by the market.
Using ratios can make it easier to identify strengths, weaknesses, and potential investment opportunities.
How to read it
Common financial ratios include earnings per share (EPS), price-to-earnings (P/E), return on equity (ROE), debt-to-equity, and profit margin. Higher or lower values may have different meanings depending on the type of ratio, industry, and company circumstances.
Ratios should be reviewed together with financial statements, market conditions, and business performance to support a more complete investment analysis.