Financial ratios turn raw numbers into insight: is a company profitable, liquid, leveraged and efficient? They are the language of analysts and lenders. Here is the comprehensive guide to the main ratios.
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Profitability Ratios
- Gross margin: gross profit ÷ revenue.
- Net margin: net income ÷ revenue.
- ROE/ROA: returns on equity and assets.
Liquidity Ratios
- Current ratio: current assets ÷ current liabilities.
- Quick ratio: liquid assets ÷ current liabilities.
Leverage Ratios
- Debt-to-equity: leverage level.
- Interest coverage: can earnings cover interest?
Efficiency Ratios
- Asset turnover: revenue ÷ assets.
- Inventory/receivable days: working-capital speed.
How to Use Them
Ratios are only meaningful vs peers and over time — a single number in isolation tells little. Track trends and compare consistently.
FAQ
Which ratio is most important?
Depends on the question: margins for profit, current ratio for safety, D/E for leverage.
Can ratios mislead?
Yes — industry context and accounting choices matter; read the notes too.
Related: Financial Statements and Call Reports.