What is the main purpose of financial ratios?

The main purpose of financial ratios is to assess a company's performance and financial health. Financial ratios provide insights into various aspects of a company's operations, including liquidity, profitability, and solvency. By comparing these ratios over time or against industry benchmarks, stakeholders such as investors, creditors, and management can evaluate how well the company is performing relative to its goals or peers.

For instance, ratios like the current ratio assess short-term liquidity, while Return on Equity (ROE) measures profitability in relation to shareholders' equity. This comprehensive analysis helps identify strengths and weaknesses within the company, guiding decision-making processes regarding investments, financing, and operational strategies.

The other options, while relevant to overall financial management, do not encapsulate the primary function of financial ratios as effectively as assessing performance and financial health does. Simplifying accounting procedures and assisting in tax planning strategies are not the direct aims of financial ratios, and while predicting market trends can be an outcome of financial analysis, it is not the core purpose of financial ratios themselves.