The value that financial ratios offer investors in reviewing the financial performance of a firm includes insight on the company's:
- profitability
- liquidity
- operational efficiency
- solvency.
What are financial ratios?
In accounting, a financial ratio is also known as a ratio analysis, which is a quantitative method of gaining an insight into a company's liquidity, operational efficiency and profitability by studying their financial statements such as the balance sheet and income statement. This ratio analysis compares data from a company's financial statements to give an insights regarding profitability, liquidity, operational efficiency and solvency.
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