Ratio analysis is a technique that involves computing some common ratios. These ratios involve comparisons of certain numbers contained in the financial statements. Certain analysts are partial to certain ratios. While there are thousands of possible ratios, there is a core group of common ratios. These are divided into three groups: liquidity ratios, efficiency ratios, and profitability ratios. When two companies are compared, it will often happen that some ratios will favor one company and other ratios will favor the other. You have to take all the ratios together, see how much difference there is, and weigh which ones you will rely on. The choice is largely a matter of personal preference.