One way of determining if the company is doing well is through the use of financial ratio analysis.
Ratio analysis provides the manager with a measure of the firm's performance.
The primary source of data for calculating these ratios are the company's income statement and balance sheet. Financial ratios also are needed by other persons interested in the performance of the company. Stockholders, bankers, and investors would be interested in how well the company is performing. These people would be interested in the profitability of the firm before investing in the company.