Which term describes a method that expresses financial relationships as ratios or percentages?

Which term describes a method that expresses financial relationships as ratios or percentages?

• A. The balance sheet
• B. Liquidity
• C. Ratio analysis
• D. Performance Appraisal

Answer: (C)

Expressing financial relationships as ratios or percentages is ratio analysis. By turning raw figures from financial statements into ratios, you can compare performance across periods, against benchmarks, or with other businesses. This approach highlights key areas like liquidity (can the firm meet short‑term obligations?), profitability (how well are sales turning into profit?), and efficiency (how effectively are resources used). For example, a current ratio assesses short-term liquidity, while net profit margin shows profitability relative to sales. The balance sheet is simply the financial statement of assets, liabilities, and equity at a point in time, not the method of analysis. Liquidity describes the ability to meet short-term obligations, not the analytical method itself. Performance appraisal is about evaluating employee performance, not financial relationships.

Expressing financial relationships as ratios or percentages is ratio analysis. By turning raw figures from financial statements into ratios, you can compare performance across periods, against benchmarks, or with other businesses. This approach highlights key areas like liquidity (can the firm meet short‑term obligations?), profitability (how well are sales turning into profit?), and efficiency (how effectively are resources used). For example, a current ratio assesses short-term liquidity, while net profit margin shows profitability relative to sales. The balance sheet is simply the financial statement of assets, liabilities, and equity at a point in time, not the method of analysis. Liquidity describes the ability to meet short-term obligations, not the analytical method itself. Performance appraisal is about evaluating employee performance, not financial relationships.