A **financial ratio** (or **accounting ratio**) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called **multiples.** Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.

Read more about Financial Ratio: Sources of Data For Financial Ratios, Purpose and Types of Ratios, Accounting Methods and Principles, Abbreviations and Terminology

### Famous quotes containing the words financial and/or ratio:

“Because of these convictions, I made a personal decision in the 1964 Presidential campaign to make education a fundamental issue and to put it high on the nation’s agenda. I proposed to act on my belief that regardless of a family’s *financial* condition, education should be available to every child in the United States—as much education as he could absorb.”

—Lyndon Baines Johnson (1908–1973)

“People are lucky and unlucky not according to what they get absolutely, but according to the *ratio* between what they get and what they have been led to expect.”

—Samuel Butler (1835–1902)