What do financial ratios help to indicate?

Financial ratios are crucial tools in analyzing a company's financial health and performance. They provide a straightforward way to assess various aspects of a company's operations, including liquidity, profitability, efficiency, and solvency. By comparing these ratios over time or against industry benchmarks, a financial analyst or investor can determine how well the company is performing and identify any potential issues that may require attention.

For instance, common financial ratios include the current ratio, which measures liquidity, return on equity, which assesses profitability, and debt-to-equity ratio, which gives insights into financial leverage. Each of these ratios serves as an indicator of different dimensions of a company's financial state and can inform decisions regarding investment, creditworthiness, and operational effectiveness.

The other choices do relate to various aspects of financial and economic analysis but do not specifically capture the comprehensive nature of what financial ratios indicate. While ratios may indirectly inform on investment opportunities or broader economic conditions, their primary and most effective use is in gauging a company's direct financial performance and stability.