What does ratio analysis express?

Ratio analysis is a powerful tool used in accounting and finance to evaluate the relationships among various items of financial statement data. By calculating and interpreting different ratios, analysts can gain insights into a company's performance, efficiency, and financial health. This method enables stakeholders to make meaningful comparisons over time, across different companies, or against industry benchmarks, by putting financial data into perspective.

By focusing on how specific figures relate to one another—such as earnings to assets, sales to equity, or current assets to current liabilities—ratio analysis highlights patterns and trends that may not be obvious when looking at the numbers in isolation. This holistic view is invaluable for decision-making regarding investments, lending, and management strategies.

While aspects like profitability and liquidity are addressed within the context of ratio analysis, they are components of the broader relationship that ratios quantify. Therefore, the essence of ratio analysis is the examination and expression of relationships among selected items of financial statement data.