Ratio analysis is widely used in practice in business. Teams of investment analysts pour over the historical and forecast financial information of quoted companies using ratio analysis as part of their toolkit of methods for assessing financial performance. Venture capitalists and bankers regularly use ratios to support their analysis when they consider investing in, or loaning to businesses.
The main strength of ratio analysis is that it encourages a systematic approach to analysing performance.
However, it is also important to remember some of the drawbacks of ratio analysis