Financial Ratio Analysis for Decision-Making: Tools for Evaluating Business Performance

Abstract

Financial ratio analysis is a core component of financial decision-making, offering insights into a firm's performance, liquidity, profitability, efficiency, and solvency. This paper explores the theoretical basis, classification, interpretation, and practical application of financial ratios in corporate and investment decision-making. Drawing on both classical and contemporary research, the study demonstrates how ratio analysis helps stakeholders—including investors, managers, creditors, and analysts—make informed decisions. Emphasis is also placed on the limitations of ratio analysis, such as accounting distortions and industry variability, underscoring the need for contextual judgment