10.4.2—Ratio analysis for strategy

Ratio analysis compares profitability, liquidity, efficiency, gearing or investment indicators across time or firms. It helps identify questions about performance and risk.

Interpret ratios with business model, industry, trend, accounting basis, seasonality and strategy. A movement can be a symptom of a deliberate choice rather than failure.

Faster inventory turnover may release cash but reduce availability; a lower margin may fund a launch that builds long-term market share.

Ratios do not prove cause or future success, and benchmarks are meaningful only when definitions and context match.