Key Types of Ratio Analysis for Evaluating Financial Performance

Ratio analysis helps assess a company’s financial health through key metrics across five categories. Liquidity ratios (current, quick) evaluate short-term solvency. Profitability ratios (net profit margin, return on assets) show how efficiently a firm generates earnings. Leverage ratios (debt-to-equity, interest coverage) measure financial risk and debt management. Efficiency ratios (asset turnover, working capital turnover) reflect operational effectiveness. Market ratios (price-earnings, price-to-book) reveal investor perceptions and valuation. Comparing these ratios over time and against industry benchmarks enables investors and managers to identify strengths, weaknesses, and growth opportunities, ensuring informed financial decisions and sustainable business performance.