What is the relationship between financial ratios and financial health?

Financial ratios serve as essential tools in evaluating a company's financial health by enabling comparisons across different periods or with other companies in the same industry. These ratios distill complex financial data into more manageable figures, allowing stakeholders to assess various aspects such as liquidity, solvency, efficiency, and profitability.

By comparing these ratios over time, investors, analysts, and management can identify trends that reflect the company's operational performance. For instance, a decreasing current ratio might indicate potential liquidity problems, while a rising debt-to-equity ratio could signal increasing financial risk. These insights help in determining how well a company is performing relative to its peers and its past performance.

Hence, option C accurately captures the essence of financial ratios by highlighting their critical role in assessing and interpreting a company's overall financial condition through comparative analysis. This understanding is vital in making informed decisions regarding investments, management practices, and financial strategy.