Ratio analysis is a method of evaluating a company's financial performance and health by examining various financial metrics expressed as ratios.
For example, an accountant performs ratio analysis on a client's financial statements and calculates a current ratio of 0.85, a debt-to-equity ratio of 3.2, and a DSCR of 1.05 — collectively flagging that the business is undercapitalized and may struggle to service its current debt load.
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