What are financial ratios?

Financial ratios are indeed quantitative metrics used to assess a company's performance and financial health. These ratios provide valuable insights into various aspects of a business, such as its profitability, liquidity, efficiency, and solvency. By analyzing these ratios, stakeholders, including investors, creditors, and management, can evaluate how well the company is performing relative to its peers or against industry benchmarks.

Ratios like the current ratio, return on equity, and debt-to-equity ratio help users make informed decisions about investing, lending, or managing the company. The clarity and objectivity that financial ratios offer make them essential tools in the analytical process of understanding a company’s financial situation.

On the other hand, the other options, while they may refer to financial concepts, do not accurately capture the broad and comprehensive nature of financial ratios. For instance, simply dividing total revenue by total expenses refers to a specific calculation (profit margin) rather than encapsulating the entirety of financial ratios. Similarly, mentioning numerical values that represent cash flow or the difference between current and non-current liabilities describes specific financial figures or measures, rather than the overall concept of financial ratios as tools for assessing performance and health.