What is a financial ratio?

A financial ratio is indeed a quantitative relationship between two financial statement items. This ratio serves as an analytical tool that enables stakeholders to assess various aspects of a company's financial performance and stability. By comparing specific numbers from financial statements, such as the balance sheet and income statement, financial ratios help in evaluating dimensions like liquidity, profitability, and solvency.

The quantitative nature of these ratios allows for easy comparisons across different periods or against industry benchmarks, making them valuable for investors, analysts, and management. For instance, the current ratio compares current assets to current liabilities, providing insight into short-term financial health.

Other options in the question present narrower aspects of financial ratios. While the measure of earnings performance focuses on profitability metrics, and the calculation of total liabilities over total assets relates specifically to the debt-to-equity ratio, they do not encompass the broader definition of financial ratios. Similarly, the percentage reflecting a company’s operating efficiency pertains to specific metrics like operating margins, which are just one subset of financial ratios.