Ratio analysis involves calculating and analyzing financial ratios from a company's financial statements to evaluate aspects of the business such as profitability, liquidity, solvency, and efficiency. The presentation discusses four main types of financial ratios: liquidity ratios, which assess a company's ability to meet short-term debts; solvency ratios, which evaluate long-term viability; activity ratios, which measure efficiency of resource use; and profitability ratios, which determine ability to earn profits relative to expenses. Ratio analysis is useful for comparing performance over time and between competitors, identifying trends, and determining operational efficiency.