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Related to ratio analysis: Financial ratios
The study of the significance of financial ratios for a company. Ratio analysis is very important in fundamental analysis, which investigates the financial health of companies. An example of ratio analysis is the comparison of price-earnings ratios of different companies. This helps analysts determine which companies' share prices properly reflect their performances and therefore what investments are most likely to be the most profitable.
A study of the relationships between financial variables. Ratios of one firm are often compared with the same ratios of similar firms or of all firms in a single industry. This comparison indicates if a particular firm's financial statistics are suspect. Likewise, a particular ratio for a firm may be evaluated over a period of time to determine if any special trend exists. Compare trend analysis. See also horizontal analysis, vertical analysis.