What is a common use for financial ratios among investors?

Investors commonly use financial ratios to compare a company's performance against its competitors. This practice allows them to evaluate how well a company is performing in its industry relative to its peers. Financial ratios provide standardized metrics such as profitability, liquidity, financial leverage, and efficiency, which can be easily compared across firms.

For example, a company’s return on equity (ROE) can be directly compared to that of other companies in the same industry to gauge its effectiveness at generating profits from shareholders' equity. This comparative analysis helps investors make informed decisions about where to allocate their capital, as they can discern which companies are outperforming their competition and which ones may be struggling.

The other options do not reflect a primary use of financial ratios by investors. While understanding future market conditions is essential for investment decisions, financial ratios are primarily historical performance metrics and do not predict future trends. Assessing the regulatory environment involves a different set of analyses that focuses on compliance and legal factors rather than direct company performance. Creating employee performance metrics is primarily an internal human resource function and not typically associated with financial ratios used by investors.