Ratio analysis can be used to assess risk, estimate value, document trends, and to conduct an evaluation of a company against similar companies in the same industry.
Ratio analysis involves using numerical information from company financial statements to determine key relationships. Ratios for specific time periods may be evaluated against ratios from other time periods for both internal and external comparative purposes. Using ratios, you can analyze a company's performance or benchmark it against its competitors, you can compare a company's financial performance to the industry average and reveal relationships between items appearing on balance sheets & income statements. For example, current assets to current liabilities, or net income to net sales.