What are financial ratios used for in business?

Financial ratios play a crucial role in assessing a company's financial health and performance, which is why the second option is the correct choice. These ratios provide valuable insights into various aspects of a company's operations, such as profitability, liquidity, efficiency, and solvency. By analyzing these figures, stakeholders—including management, investors, and creditors—can compare current performance with past performance, as well as benchmark against other companies in the same industry. This comparative analysis is vital for making informed business decisions, identifying trends, and setting strategic goals.

For example, ratios like return on equity or debt-to-equity can reveal how effectively a company generates returns for its shareholders or how much leverage it is using to finance its operations. This kind of information helps stakeholders gauge the company's performance over time and its position relative to peers, making it an indispensable tool for financial analysis.