What is the purpose of a financial ratio?

The purpose of a financial ratio is to assess a company's financial status by comparing various financial statement figures. Financial ratios provide valuable insights into a company's performance and financial health by enabling stakeholders to analyze relationships between different financial metrics, such as profitability, liquidity, efficiency, and solvency.

By examining these relationships, analysts, investors, and management can identify trends, make comparisons across different companies, or evaluate the company's performance over time. For instance, profitability ratios measure how efficiently a company generates profit relative to its revenue, while liquidity ratios assess the company's ability to meet short-term obligations. This analytical framework helps in decision-making processes regarding investments, credit, and management strategies.

In contrast, the other options focus on aspects that do not directly relate to the primary function of financial ratios. Measuring employee performance pertains to human resources metrics, determining market value of shares involves different valuation methods, and calculating tax obligations requires specific accounting practices rather than ratio analysis.