What financial statements are required to calculate financial ratios?

To calculate financial ratios, the income statement and balance sheet are essential. The income statement provides information about a company's revenues, expenses, and profits over a specific period, which is crucial for assessing operational efficiency, profitability, and performance metrics. The balance sheet offers a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time, informing ratios related to financial stability and leverage.

These two statements are fundamental because various financial ratios, such as the current ratio, return on equity, and debt-to-equity ratio, require data from both. The balance sheet accounts for the financial position, while the income statement elucidates how well the company performed during the reporting period. This combination allows for comprehensive financial analysis, enabling stakeholders to make informed decisions based on both profitability and solvency aspects.

Other options might suggest other combinations of financial statements, but they would not encompass the full range of ratios typically analyzed in financial performance assessments. For instance, while the cash flow statement provides valuable insights into liquidity, it is not directly used to calculate the common financial ratios that rely on the income statement and balance sheet.