Final answer:
A financial ratio shows the relationship between two financial elements, such as debt-to-equity or market competition through the four-firm concentration ratio and the Herfindahl-Hirschman Index.
Step-by-step explanation:
The correct statement regarding a financial ratio is that it shows the relationship between two financial elements. Financial ratios are important tools used by accountants and analysts to evaluate the financial health and performance of firms.
Unlike an absolute value, a ratio provides a comparative measure that can assess liquidity, profitability, efficiency, and solvency, among various other financial aspects. Because financial ratios show how one accounting figure relates to another, their values can change over time with the financial dynamics of the company.
For example, a commonly used financial ratio is the debt-to-equity ratio, which compares a company's total liabilities to its shareholder equity, thereby helping to understand the company's leverage. Also, ratios like the four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI) help analyze market competition by examining the market shares of leading firms.