An accounting ratio is a numerical comparison of two financial figures taken from financial statements.

It is used to:

Analyse financial performance

Measure profitability

Check liquidity

Evaluate efficiency

Common examples:

Current Ratio – Measures ability to pay short-term debts

Net Profit Ratio – Measures profitability

Debt-Equity Ratio – Measures financial stability

In simple terms, an accounting ratio is a tool used to understand a company’s financial health by comparing important numbers.