Financial ratios are useful tools for investors to better analyze financial results and trends over time. These ratios can also be used to provide key indicators of organizational performance ...

But to really dig down into the valuation of a stock you'll want to understand some key financial ratios to compare the health of a company with its peers, its industry and itself over time.

"Index funds can afford to have lower expense ratios because they are passive investment vehicles. That is, one isn't paying financial professionals to select investments," Johnson explains.