Ratio Analysis

Tax Glossary Definition

Ratio Analysis

Ratio analysis is a financial assessment method that evaluates an organization’s performance and stability by analyzing the interrelationships among key figures in its financial statements. It provides insights into liquidity, profitability, solvency, and operational efficiency, facilitating both trend analysis and comparisons with industry standards.

Example: An investor may apply the current ratio—calculated as current assets divided by current liabilities—to determine a company’s ability to meet short-term financial obligations.

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