Financial Ratio analysis is used by accountants, business investors and buyers, business brokers, those performing due diligence investigations, and others to evaluate a company's profitability, liquidity, efficiency, and solvency, by examining its financial statements. These ratios help predict a company's potential future growth and profitability and much more. It also makes it easier to compare one company to another.

Liquidity ratios measure a company's ability to payoff short-term debts as they become due. These ratios include the current ratio which is considered the most important ratio. Solvency ratios, also called financial leverage ratios, compare a company's debt levels with assets, equity, and earnings. Examples include debt to equity ratios, debt to asset ratios, and interest coverage ratios.

Profitability ratios show how well a company is able to generate profits to cover its debt and other expenses. Examples include profit margin ratios, return on assets, return on equity, return on capital employed, and gross margin ratios.

Efficiency ratios evaluate how efficient a company uses its resources. Examples include the inventory turnover ratio, and the day's sales in inventory ratio.

Market prospect ratios include dividend yield, PIE ratio, earnings per share, and the dividend payout ratio.

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