Financial ratios are mathematical calculations used to analyze and assess a company's financial performance and position. They provide insights into various aspects such as profitability, liquidity, solvency, efficiency, and market valuation.

Financial ratios help investors, analysts, and stakeholders evaluate a company's financial health, make informed investment decisions, compare performance between companies or industries, identify trends, and assess the effectiveness of management's strategies.

Financial ratios are derived by dividing one financial metric by another. For example, the current ratio is calculated by dividing current assets by current liabilities. There are different ratios for different purposes, such as profitability ratios, liquidity ratios, leverage ratios, activity ratios, and valuation ratios.

Common profitability ratios include gross profit margin, net profit margin, return on assets (ROA), return on equity (ROE), and earnings per share (EPS). These ratios measure the company's ability to generate profits from its operations.

Liquidity ratios measure a company's ability to meet short-term obligations and manage cash flow. Examples include the current ratio, quick ratio, and cash ratio. These ratios help assess a company's ability to pay off its short-term debts.

Leverage ratios evaluate a company's level of debt and its ability to meet long-term financial obligations. Examples include debt-to-equity ratio, debt ratio, and interest coverage ratio. High leverage ratios indicate higher financial risk and potential difficulties in servicing debt.

Activity ratios, also known as efficiency ratios, assess how effectively a company utilizes its assets. Examples include inventory turnover ratio, accounts receivable turnover ratio, and total asset turnover ratio. These ratios provide insights into the efficiency of operations and asset management.