Example Concept: Financial ratios serve as quantitative tools that help in evaluating a company's financial stability and performance. Liquidity ratios, like the current ratio, assess a company's ability to cover short-term liabilities with short-term assets. Solvency ratios, such as the debt-to-equity ratio, measure long-term financial sustainability by comparing total debt to shareholder equity. Profitability ratios, like the net profit margin, indicate how efficiently a company converts revenue into profit. Together, these ratios provide a comprehensive view of financial risks and guide strategic planning.