Ratios are mathematical expressions that reflect the relationships between two or more different quantities. Ratios can be used to compare items, evaluate performance, assess financial health, and measure progress over time. In business, ratios are often used to determine a company’s profitability, liquidity, efficiency, leverage ratio and growth potential.

The most commonly used ratios in business include profitability ratios such as gross margin and return on investment (ROI). Gross margin is the difference between a company’s total sales revenue and cost of goods sold expressed as a percentage of total sales revenue. ROI measures how well management utilizes resources to generate profits relative to the total investments made into the business. It also provides insight into how efficiently a company is using its capital.