A comparison of selective and different sets of financial data to evaluate a firm's performance and financial condition. It is used to ascertain the level of profitability, the volume of liquidity, the debt to equity leverage, and the effectiveness of its key activities. Analysis is broadly under the headings of: (a) Liquidity: to measure the company's capacity to pay debts as they are due; (b) Safety: to indicate the company's vulnerability to risk; (c) Profitability: to measure the company's ability to make profit; and (d) Efficiency: to indicate how efficiently the company manages its assists. Some important ratios are: Liquidity: Current: current assets divided by current liabilities, to ascertain the general level of liquidity. Quick (Acid Test) - current assets less inventory divided by current liabilities, to ascertain a more specific level of liquidity. Safety: Debt to Equity: funds provided by lenders divided by owners invested capital, to establish how the business is financed. Debt Coverage - net profit plus non-cash charges divided by debt, to show how much of profits is available to repay debt. Profitability: Sales Growth - current year's sales minus last year's sales divided by last year's sales, to arrive at a percentage increase (or decrease) in sales between the two time periods. Cost of Goods Sold (COGS) to Sales - cost of goods sold. Divided by sales, to know the percentages of sales used to pay for expenses which vary directly with sales. Gross Profit Margin - sales minus cost of goods sold (to get Gross Profit) divided by sales, to give an indicator of how much profit is earned to cover selling and administration costs. Net Profit Margin - gross profit minus all other expenses and taxes (to get Net Profit) divided by sales, to ascertain how much profit comes from every dollar of sales. Return on Equity (ROE) - net profit divided by shareholders' funds, to determine the rate of return on shareholders' investments in the business. Return on Assets (ROA) - net profit divided by total assets, to determine how effectively the assets were used to generate a return. Inventory Turnover cost of goods sold divided by average inventory, to see the number of times that the inventory has been turned over (sold) during the year. Accounts Receivable Turnover net sales divided by the average accounts receivable, to tell the number of times that trade receivables turnover during the year. Accounts Payable Turnover - cost of goods sold divided by the average accounts payable, to find out the number of times trade payables turnover during the year