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Financial Ratios and Ratio Analysis

The University of Chicago_052921C
[The University of Chicago]


- Overview

A good way to monitor the health of your business is to measure many different financial ratios. 

It's difficult to take steps to support your company's growth without first understanding how your organization stands out from the competition. If you're looking to assess your company's health and identify opportunities for improvement, look at your company's financial ratios. These can be useful indicators of how well your company is performing across multiple financial areas. 

Financial ratios are calculated based on information from your company's financial statements. This includes your cash flow statement, balance sheet, and profit and loss (P&L) statement. Before you start calculating your company's financial ratios, take the time to gather the relevant documents.

- Why Ratio Analysis Is So Important

Ratio analysis is the practice of analyzing different aspects of financial information found in a company's financial statements. In most cases, analysts use ratio analysis externally to determine key financial aspects of a company, such as solvency, liquidity, and profitability. These are some of the key metrics that allow industry leaders to develop better business strategies and take the right actions at the right time.
Data analysts need to use past and current financial statements to collect data that will allow them to gain valuable information about a company's financial performance. With this data, analysts can determine whether a company's financial situation is improving or deteriorating and compare it to its competitors.



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