Section 4
Using Financial Ratios for Analysis
By Boundless
Financial statement analyses can yield a limited view of a company because of accounting, market, and management related limitations of such analyses.
![Thumbnail](../../../../../../figures.boundless-cdn.com/14544/square/c-oriented-creation-trends.jpg)
Trend analysis consists of using ratios to compare company performance on an indicator over time, often to forecast or inform future events.
![Thumbnail](../../../../../../figures.boundless-cdn.com/14611/square/performance-ratings.jpg)
Comparing the financial ratios of a company to those of the top performer in its class is a type of benchmarking.
![Thumbnail](../../../../../../figures.boundless-cdn.com/4937/square/2c-tolkamer-2c-netherlands.jpeg)
While ratio analysis can be quite helpful in comparing companies within an industry, cross-industry comparisons should be done with caution.
![Thumbnail](../../../../../../figures.boundless-cdn.com/14369/square/be-d0-b7-d0-b8-d0-bb-d0-b0.jpeg)
With a few exceptions, the majority of the data used in ratio analysis comes from evaluation of the financial statements.
Financial ratios and their analysis provide information on a firm's profitability and allow comparisons between the firm and its industry.