Ratio Analysis of Financial Information

The most robust type of analysis is ratio analysis. A ratio is a comparison of two numbers and normally takes the form of a fraction, decimal, or percentage. A ratio can be specific to a company, to companies within a region, to an industry, or to a stock exchange. Ratios are versatile and powerful. This section will show you how to use ratios to explain and compare companies to other companies or industries as a whole.

There are four basic types of ratios, which are used to measure profitability, short-term liquidity, long-term solvency, and market valuation.