What are financial ratios? Name a few commonly used ones.

Financial ratios are numerical tools used to evaluate a company’s performance, financial health, and efficiency by comparing various financial statement figures. These ratios help investors, analysts, and managers understand how well a company is operating and where improvements may be needed. They are typically grouped into categories like liquidity ratios, profitability ratios, leverage ratios, and efficiency ratios. Liquidity ratios like the current ratio and quick ratio measure a company’s ability to meet short-term obligations. Profitability ratios such as net profit margin and return on equity assess the company’s ability to generate profits. Leverage ratios like the debt-to-equity ratio show the level of debt used in the capital structure. Efficiency ratios, including inventory turnover and asset turnover, analyze how effectively resources are used. These ratios are essential for comparing companies and making informed financial decisions.