Which of the following best describes the role of financial ratios?

The role of financial ratios is primarily to indicate a bank’s efficiency and performance. Financial ratios are quantitative measures derived from the financial statements of an institution and are essential tools used by analysts, investors, and regulators to evaluate a bank's financial health. Ratios such as the return on assets (ROA), return on equity (ROE), and the efficiency ratio provide critical insights into how effectively a bank is operating and its profitability in relation to its assets and equity.

By analyzing these ratios, stakeholders can assess the ability of a bank to generate earnings from its resources, how well it manages its operating costs relative to its income, and overall financial stability. This makes financial ratios invaluable for comparison over time or against peer institutions, helping to identify trends and potential issues in a bank's operations.

While financial ratios can sometimes be presented in marketing materials, they serve a far more important purpose than just marketing. They do not measure interest rate fluctuations directly; instead, they provide an overview of financial performance. Additionally, financial ratios cannot replace audit procedures, which play a crucial role in verifying the accuracy and fairness of a bank's financial statements. Thus, the role of financial ratios is centered around assessing efficiency and performance, making them an essential component of financial analysis for banks