A method of expressing the relationship between one accounting result and the other, which is intended to give a useful comparison. Accounting ratios helps in measuring the efficiency and profitability of a corporation based on its financial reports. Accounting ratios outline the basis of fundamental analysis. It is also known as financial ratio.
An accounting ratio compares two facets of a financial statement, like the relationship (or ratio) of current assets to current liabilities. The ratios can be used to assess the financial condition of a company, involving the company's strengths and weaknesses. An instance of an accounting ratio is the price-to-earnings (P/E) ratio of a stock. This calculates the price paid per share with relation to the profit gained by the company per share in a particular year.