This article discusses the use of financial ratios (or diagnostic ratios) in the context of identifying comparable companies for transfer pricing purposes, with the aim of addressing a number of issues that require further guidance in the process of developing a harmonized approach to comparables searches from a pan-European perspective. A general background is provided as to how diagnostic ratios can be applied in the quantitative screening phase of a comparables search. The use of diagnostic ratios in the quantitative screening phase, as opposed to the use of adjustments to a final set of comparable companies, is briefly discussed. A number of technical issues and best practices related to the application of diagnostic ratios are also considered.