Introduction to Ratios

What is the Purpose of Ratio Analysis?


Ratios are an efficient tool at assessing a business’s performance. They are tool which can be used to compare the past performance of companies and the performance of different companies.

Ratios provide a summary of a company's performance into a single number or percentage, which makes it easy to compare past performance and different companies as you're just comparing two different numbers or percentages.

Ratio Hierarchy 

There are a lot more ratios than shown above, however, these are the ones mentioned in the ATAR WACE Accounting and Finance Syllabus and the guide will only focus on these ratios.