The HBR Guides Collection (8 Books) (HBR Guide Series)

43

Using Statements

to Measure

Financial Health

By themselves, fi nancial statements tell you quite a bit:

how much profi t the company made, where it spent its

money, how large its debts are. But how do you interpret

all the numbers these statements provide? For example,

is the company’s profi t large or small? Is the level of debt

healthy or not?

Ratio analysis allows you to dig into the information

contained in the three fi nancial statements. A fi nancial

ratio is just two key numbers expressed in relation to

each other. Using ratios, you can compare your compa-

ny’s performance to that of its competitors, to industry

averages, and to its own performance ...