A ratio is a comparison of one number to another. The concept is commonly used in financial analysis to gain insights into the financial performance, condition, and cash flows of an organization. This is done by comparing the numbers in an entity's financial statements to each other. For example:

Ratio analysis can also be used outside of a company's financial statements. For example, the price/earnings ratio compares a company's stock price to its net income to see if the stock is properly valued.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements