What is the purpose of comparative ratio analysis?

Comparative ratio analysis serves the purpose of identifying trends over different time periods by evaluating the changes in key financial ratios. This analysis involves examining financial ratios across multiple periods, which allows businesses to recognize patterns, assess performance over time, and understand how financial metrics evolve. For instance, by looking at the trends in profitability, liquidity, or solvency ratios, businesses can make informed decisions based on historical performance. This capability to highlight trends assists management in strategizing for future actions and making adjustments based on the financial health of the organization.

The other options relate to different aspects of business management but do not align with the primary goal of comparative ratio analysis. Predicting future revenue streams is often based on market analysis and forecasting methods rather than solely on past ratios. Assessing employee performance typically involves performance metrics and evaluations rather than financial ratios. Streamlining operational efficiency may involve various methodologies, including lean management practices and operational audits, rather than ratio comparison. Thus, the focus on identifying trends is what makes this choice the most appropriate for the purpose of comparative ratio analysis.