What is the main purpose of financial ratios?

The primary purpose of financial ratios is to evaluate a company's performance and financial health. Financial ratios provide a quantitative measure that allows analysts, investors, and stakeholders to assess various aspects of a company's financial structure, including profitability, liquidity, efficiency, and solvency. By analyzing these ratios, one can gain insights into how well a company is operating and its ability to meet obligations and grow over time.

For instance, profitability ratios help in understanding how effective a company is at generating earnings compared to its expenses and other costs, while liquidity ratios assess the company's ability to cover short-term liabilities. This evaluation of performance and financial health is crucial for making informed investment decisions, conducting credit assessments, or strategic planning within the organization.

Other options focus on aspects like predicting stock prices or managing personal finance, which, while related to finance, do not directly capture the essence of financial ratios and their primary function of assessing a company's performance. Similarly, determining the best investment opportunities is a secondary outcome that relies on a careful analysis of the financial health highlighted by these ratios.