How is a ratio defined in financial terms?

In financial terms, a ratio is defined as a comparison of two numbers through division. Ratios provide valuable insights into different aspects of a business's performance, financial health, and operational efficiency. They are commonly used in financial analysis to assess relationships between various financial statement elements, such as profitability, liquidity, and solvency.

For instance, the current ratio, which compares current assets to current liabilities, helps analysts evaluate a company's ability to meet its short-term obligations. By expressing these comparisons in a ratio format, it becomes easier to analyze trends over time or compare the performance of different companies, irrespective of their size.

Other choices do not accurately capture the definition of a financial ratio. The total income of a business refers to revenue, while the difference between total assets and total liabilities describes equity. A sequence of financial transactions over time pertains more to financial accounting and record-keeping than to the concept of ratios. Hence, the definition involving division of two numbers best encapsulates what a financial ratio is.