How do companies utilize financial ratios?

• A. To evaluate employee performance
• B. To gauge their market presence
• C. To review their financial health and benchmark against industry standards
• D. To determine marketing strategies

Answer: (C)

Companies utilize financial ratios primarily to review their financial health and benchmark against industry standards, which is crucial for making informed business decisions. Financial ratios allow companies to analyze various aspects of their financial performance, including profitability, liquidity, solvency, and operational efficiency. By comparing these ratios to industry averages or competitors, companies can identify strengths and weaknesses in their financial position.

This analysis helps businesses understand how well they are performing relative to their peers, ensuring they are on a path toward sustained growth and stability. Additionally, these ratios provide insights that can inform strategic planning and resource allocation, making them an essential tool in financial management.