What are the most important financial ratios?

Some of the most useful include efficiency, leverage, profitability, and liquidity ratios. Here's an explanation of the most important financial ratios to analyze a company's financial performance. With efficiency ratios, you can measure how well your company uses its people, materials, and other assets to stimulate revenue.

What are financial ratios used for?

The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more. Financial ratios are grouped into the following categories:

Why do managers use financial ratios?

These ratios can also be used to provide key indicators of organizational performance, making it possible to identify which companies are outperforming their peers. Managers can also use financial ratios to pinpoint strengths and weaknesses of their businesses in order to devise effective strategies and initiatives.