Ratio analysis is a tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. It involves calculating and interpreting various ratios to evaluate the financial performance and health of a company. Ratio analysis provides valuable insights into a company's liquidity, profitability, efficiency, and solvency.

Key points:
- Ratio analysis involves calculating and interpreting various ratios to evaluate a company's financial performance and health.
- Ratios are calculated by dividing one financial figure by another to provide meaningful comparisons and insights.
- Ratios can be categorized into different types, such as liquidity ratios, profitability ratios, efficiency ratios, and solvency ratios.
- Liquidity ratios measure a company's ability to meet its short-term obligations and include the current ratio and quick ratio.
- Profitability ratios assess a company's ability to generate profits and include the gross profit margin, net profit margin, and return on equity.
- Efficiency ratios measure how efficiently a company utilizes its assets and includes the inventory turnover ratio and accounts receivable turnover ratio.
- Solvency ratios evaluate a company's long-term financial stability and ability to meet its long-term obligations, such as the debt-to-equity ratio and interest coverage ratio.
- Ratio analysis helps identify trends, strengths, and weaknesses in a company's financial performance and assists in making informed business decisions.
- It also facilitates comparisons between companies within the same industry or benchmarks against industry standards.
- However, ratio analysis has limitations and should be used in conjunction with other financial analysis tools and qualitative factors for a comprehensive evaluation.

In conclusion, ratio analysis is a valuable tool for individuals to conduct a quantitative analysis of a company's financial statements. It helps assess the financial performance and health of a company by calculating and interpreting various ratios. However, it should be used in conjunction with other financial analysis tools and qualitative factors for a comprehensive evaluation.