The Corporate Finance Institute
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Corporate Finance Institute
Financial Ratios
Financial Ratio Analysis Overview
What is Ratio Analysis? Corporate finance ratios are quantitative measures that are used to assess businesses. These ratios are used by financial analysts, equity research analysts, investors, and asset managers to evaluate the overall financial health of businesses, with the end goal of making better investment decisions. Corporate finance ratios are also heavily used by financial managers and C-suite officers to get a better understanding of how their businesses are performing.
Why use Ratio Analysis? Ratio analysis is a great way to compare two companies that are different in size operations and management style. It also is a great way to quantify how efficient a company’s operations are and how profitable the business is set up to be. Solvency ratios, for example, can be used to analyze how well a company will be able to meet their financial obligations.
Types of Ratios? Corporate finance ratios can be broken down into four categories that measure different types of financial metrics for a business: liquidity ratios, operational risk ratios, profitability ratios, and efficiency ratios:
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