Introduction to Ratio Analysis & Performance Measurement

What Is Ratio Analysis?

Ratio analysis is the process of evaluating relationships between financial statement accounts to assess a company's financial health, operating efficiency, profitability, liquidity, and solvency. Performance measurement extends ratio analysis by evaluating how effectively management utilizes resources to achieve organizational objectives.

In the CPA BAR discipline, ratio analysis is more than calculating formulas. Candidates are expected to interpret results, identify trends, compare companies, recognize risks, and recommend business improvements based on financial evidence.

• Measure financial performance objectively.
• Compare companies and industry peers.
• Identify strengths and weaknesses.
• Evaluate management effectiveness.
• Support strategic business decisions.