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so why do we use ratio analysis ratio analysis allows us to compare two different companies or even two different industries for example have you ever wondered which was more profitable grocery stores or airlines have you thought which one's more efficient walmart or target those are the kind of questions that you can answer when using ratio analysis ratio analysis is how most investors actually end up making their investment decisions by looking at a whole bunch of very complicated ratios they're able to determine which companies fit their investing strategy the best now i'm not saying that you're going to be a professional investor after these few videos you will learn how to develop your own ratios and at the same time you'll be able to understand the most common ratios used by professional investors consultants and business managers and don't think that in case you're not going to be an investor this isn't invaluable to you the very bottom line is we use ratio analysis to compare companies and industries to each other so that we can better understand which investments look the best or where we can possibly improve our own companies so how do we do ratio analysis we see at the core of it ratio analysis has five kind of main buckets of individual ratios you have activity solvency profitability liquidity and valuation inside those five buckets will be a handful or so of traditional kind of go-to ratios and then once you kind of understand how these ratios work and their goals then you can actually build your own ratios i'll show you what's something that i've done and i've found a lot of joy in doing that and that's something that you can learn as well but inside those main five buckets you should be able to understand a lot about how a company operates now all these ratios use the financial statements one way or another and as we've seen in the accounting and finance courses not everyone writes their financial statements the exact same way while yes there is kind of a general template people use of sales at the top and kind of profit at the bottom and on the balance sheet kind of assets at the very beginning and then equities at the end it's still not something that everyone has the exact same light items all over the place and since you're comparing mostly two or more companies to each other when you do these kind of ratio analysis you really need to understand how to get a company into a common or kind of template kind of financial statement now we could totally spend an entire course just showing you how to combine certain line items and other line items and all the details and complications that go around doing that exact task luckily we don't have to you see there are companies out there that actually do this for you automatically these companies create what we call common form financial statements now these are the same kind of companies or some of them are the same kind of companies that professional investors use uh bloomberg fact set s p cap iq those three are where most professional investors get their information about how they evaluate companies and what their new quarterly earnings look like and things of that nature now those three are also very expensive and so there are some free alternatives that we're going to point you towards in this course so that you can actually be able to follow along with us and get the most updated numbers in the exact same template that we use as well so for the free side you have companies like yahoo finance zax morningstar and macro trends all four of those will have financial statements that should be free to access in a common form of some sort of another now they may not all have the exact same template or exact same form like comparing yahoo finance to morningstar may not actually have the exact same light items in each one of those but if you can pair apple on yahoo finance to amazon on yahoo finance they will have the exact same light items it'll be sales cost goods sold so on and so forth so our personal favorites is macro trends i find that macro trends is just the easiest to understand easiest to find and it's not as full of ads as a lot of the other ones are now that we know where we're going to get our data it's time to actually start looking at what ratio analysis are we actually going to do