What is the function of financial ratios in analysis?

The function of financial ratios is primarily to compare financial health and performance metrics. These ratios provide meaningful insights into a company's operational efficiency, profitability, liquidity, and solvency by establishing quantifiable relationships between different financial statement items.

Investors, analysts, and stakeholders utilize these ratios to gauge how well a company is performing relative to its past performance or in comparison to industry standards and competitors. For instance, the current ratio indicates liquidity, while the return on equity reflects how effectively a company is generating profits from its assets. By looking at these ratios in conjunction, it becomes easier to identify strengths and weaknesses within the firm's financial structure.

Regarding the other options, assessing market trends and predicting future prices involves market analysis and speculation rather than financial ratio assessment. Calculating tax obligations and savings pertains to tax preparation and financial planning, which does not focus on performance metrics. Evaluating stock market volatility is more about market behaviors and fluctuations rather than the specific financial health of a company. Therefore, focusing on the comparison of financial health and performance metrics is the cornerstone purpose of financial ratios.