Why are ratios important? Well, having lots of ratios helps us to simplify the financial statements. It draws your eye to important elements that might be lost through all the hundreds and thousands of numbers in there. They also mean that you can compare performance over time. Maybe sales this year in our business are the same as last year, but making less profit from them. The ratios might be able to identify why that's the case, and help us work out, why did my profits go down? Ratios also mean that you can compare against peers of varied size. For instance, if we were comparing to a peer two or three times bigger, you might expect their profit to be two or three times bigger as well. But, if we have a better profit margin than them, it might show that we are performing better than them, despite our smaller size. Having lots of ratios also allows for trend analysis. Are we getting better each year? Are we being more efficient? Or, perhaps, we're a little bit lackluster in one area of our business that could be improved. And that links us nicely onto the next item. It helps us identify business strengths and weaknesses. Maybe, we're really good at making things cheap, but perhaps we're also bad at chasing our customers who are late paying their bills. Lastly, it's useful for a range of stakeholders. Yes, it's good for management, trying to improve performance, but it's also good for shareholders to keep a tab on management, make sure they're working in the shareholders' interests. Other stakeholders might include employees and suppliers. Employees might ask, do I really want to work in this company? Is it a healthy company? And suppliers might want to ask, do I really want to extend credit to this business?