In investment planning, what does an understanding of financial ratios enable managers to do?

An understanding of financial ratios empowers managers to make informed decisions based on quantitative data because these ratios offer a quantitative analysis of a company's financial health and operational efficiency. Financial ratios, such as liquidity ratios, profitability ratios, and solvency ratios, allow managers to assess the organization's performance relative to industry benchmarks and historical data.

By interpreting these ratios, managers can identify trends, evaluate financial stability, and make comparison analyses that inform their strategic decisions. This quantitative insight is crucial for resource allocation, investment planning, and evaluating the potential risks and returns of different business opportunities.

While negotiating better contracts, developing personal investment portfolios, or controlling employee performance can involve some level of quantitative analysis, these activities are not the primary focus of financial ratios. Instead, financial ratios specifically provide a foundation for data-driven decision-making in the context of investment planning and organizational assessments.