Definition · financial analysis
Ratio analysis
Ratio analysis is the practice of using ratios drawn from the financial statements to assess performance and health. For ratio analysis, the useful boundary is the driver, assumption, source data, owner, time period, scenario logic, and decision the model is meant to support.
Also known as financial ratio analysis
Why it matters
Understanding ratio analysis matters because planning only improves decisions when assumptions, drivers, owners, and time periods are explicit enough to revisit when actuals arrive. When the term is tied to a source system, owner, and review cadence, it becomes easier to audit assumptions, catch changes early, and keep operators aligned.
In practice
Planning example
Teams use ratio analysis when a forecast, budget, or scenario needs an assumption that can be revisited. The finance team should know the driver, source data, owner, and period before using it in a model.
Review example
Ratio analysis should be reviewed whenever the source system, calculation logic, time period, or decision owner changes. That keeps the definition useful instead of letting it drift into a label.
In practice, teams should define ratio analysis with a clear source, owner, time period, and decision before they use it in reporting, planning, or operating reviews.
Understanding ratio analysis matters because planning only improves decisions when assumptions, drivers, owners, and time periods are explicit enough to revisit when actuals arrive. When the term is tied to a source system, owner, and review cadence, it becomes easier to audit assumptions, catch changes early, and keep operators aligned.
A strong workflow for ratio analysis separates the definition from the action: first agree what the term means, then decide how it is measured, when it changes, and who is accountable for the next step.
FAQ
What is ratio analysis?
Ratio analysis is the practice of using ratios drawn from the financial statements to assess performance and health. For ratio analysis, the useful boundary is the driver, assumption, source data, owner, time period, scenario logic, and decision the model is meant to support.
What are the main types of financial ratios?
For ratio analysis, the useful categories depend on using ratios drawn from the financial statements to assess performance and health. Teams should name the categories they use, map each one to source data, and keep the same taxonomy across reporting periods.
Sources
- Art of Financial Statement Analysis: A Deep Dive Into Ratios Keiser University https://www.keiseruniversity.edu ›keiseruniversity.edu
- Financial Ratio Analysis: Definition, Types, Examples, and ... Investopedia https://www.investopedia.com › ... ›investopedia.com
- Financial Ratios: Definition, Types, and Examples Corporate Finance Institute https://corporatefinanceinstitute.com ›corporatefinanceinstitute.com