The Sharpe ratio is a financial metric used to evaluate the performance of an investment by adjusting for its risk. It measures the excess return an investment generates compared to a risk-free rate, divided by its volatility. A higher Sharpe ratio indicates a more attractive risk-adjusted return, making it easier for investors to compare different investments. Developed by economist William F. Sharpe, the ratio helps investors understand how much return they are receiving for the level of risk taken. It is commonly used in portfolio management and investment analysis to assess the efficiency of various assets or funds.