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1. Liquidity Ratios
– Quick ratio:
Assess 90-day liquidity: (Current Assets – Inventories) / Current Liabilities
– Current ratio:
Assess 12-month liquidity: Current Assets / Current Liabilities
– Cashflow coverage ratio:
Measures the ability to pay off obligations with operating cash flows: Operating Cash Flows / Total Debt
2. Profitability Ratios
– Return on investment (ROI):
Measure investment effectiveness: (Gain from Investment / Cost of Investment) x 100
– Return on equity (ROE):
Assess shareholder value creation: Net Income / Shareholder’s Equity
– Gross margin:
Measure financial efficiency: (Revenue – COGS) / Revenue
3. Debt Ratios
– Debt ratio:
Analyze debt proportion: Total Debt / Total Assets
– Debt to equity ratio:
Evaluate financial leverage: Total Debt / Total Equity
4. Efficiency Ratios
– Inventory turnover:
Analyze inventory sales rate: Cost of Goods Sold / Average Inventory
– Asset turnover:
Measure revenue generation: Net Sales / Average Total Assets
5. Valuation Ratios
– Price/earning ratio (PE ratio):
Understand stock valuation: Stock Price / Earnings per Share (EPS)
– Dividend yield:
Calculate shareholder return: Dividends per Share / Stock Price
What other ratios would you add to this list?
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