Financial Ratios (2024)

This calculator is designed to show you 10 different financial ratios. Financial ratios are used as indicators that allow you to zero in on areas of your business that may need attention such as solvency, liquidity, operational efficiency and profitability.

The American Institute of Certified Public Accountants

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circ*mstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Financial Ratios (2024)


What are the 5 key financial ratios? ›

Financial ratios are grouped into the following categories:
  • Liquidity ratios.
  • Leverage ratios.
  • Efficiency ratios.
  • Profitability ratios.
  • Market value ratios.

What are four 4 fundamental financial ratios? ›

Ratios include the working capital ratio, the quick ratio, earnings per share (EPS), price-earnings (P/E), debt-to-equity, and return on equity (ROE). Most ratios are best used in combination with others rather than singly to accomplish a comprehensive picture of a company's financial health.

What do you mean by financial ratios? ›

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, making it possible to identify which companies are outperforming their peers.

What are the 4 most commonly used categories of financial ratios? ›

Assess the performance of your business by focusing on 4 types of financial ratios:
  • profitability ratios.
  • liquidity ratios.
  • operating efficiency ratios.
  • leverage ratios.
Dec 20, 2021

What are the most crucial financial ratios? ›

Let's get to it.
  1. Price-Earnings Ratio (PE) This number tells you how many years worth of profits you're paying for a stock. ...
  2. Price/Earnings Growth (PEG) Ratio. ...
  3. Price-to-Sales (PS) ...
  4. Price/Cash Flow FLOW +3.3% (PCF) ...
  5. Price-To-Book Value (PBV) ...
  6. Debt-to-Equity Ratio. ...
  7. Return On Equity (ROE) ...
  8. Return On Assets (ROA)
Jun 8, 2023

What is the ideal ratio of all accounting ratios? ›

The higher the ratio, the higher its liquidity. However, the ideal current ratio is 2:1. Anything higher than this indicates the company is not putting its excess cash to good use. However, there is one drawback of the current ratio that it cannot be used in isolation to compare different companies.

Which ratio is best for profitability? ›

Gross profit margin, also known as gross margin, is one of the most widely used profitability ratios. Gross profit is the difference between sales revenue and the costs related to the products sold, the aforementioned COGS.

What is the P&L ratio formula? ›

The profit/loss ratio is the average profit on winning trades divided by the average loss on losing trades over a specified time period.

What ratios do investors look at? ›

Here are the most important ratios for investors to know when looking at a stock.
  • Earnings per share (EPS) ...
  • Price/earnings ratio (P/E) ...
  • Return on equity (ROE) ...
  • Debt-to-capital ratio. ...
  • Interest coverage ratio (ICR) ...
  • Enterprise value to EBIT. ...
  • Operating margin. ...
  • Quick ratio.
Aug 31, 2023

What is an acceptable financial ratio? ›

A ratio of 1 or greater is considered acceptable for most businesses. Indicates a company's ability to pay immediate creditor demands, using its most liquid assets.

How to tell if a company is doing well financially? ›

12 ways to tell if a company is doing well financially
  1. Growing revenue. Revenue is the amount of money a company receives in exchange for its goods and services. ...
  2. Expenses stay flat. ...
  3. Cash balance. ...
  4. Debt ratio. ...
  5. Profitability ratio. ...
  6. Activity ratio. ...
  7. New clients and repeat customers. ...
  8. Profit margins are high.

What is a good debt-to-equity ratio? ›

The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

What is the turnover ratio? ›

A turnover ratio in business is a measurement of the firm's efficiency. It is calculated by dividing annual income by annual liability. It can be applied to the cost of inventory or any other business cost. Unlike in investing, a high turnover ratio in business is almost always a good sign.

What is the asset turnover ratio? ›

The asset turnover ratio measures the efficiency of a company's assets in generating revenue or sales. It compares the dollar amount of sales (revenues) to its total assets as an annualized percentage. Thus, to calculate the asset turnover ratio, divide net sales or revenue by the average total assets.

What are the 5 methods of financial statement analysis? ›

What are the five methods of financial statement analysis? There are five commonplace approaches to financial statement analysis: horizontal analysis, vertical analysis, ratio analysis, trend analysis and cost-volume profit analysis. Each technique allows the building of a more detailed and nuanced financial profile.

What are the six key ratios? ›

You can analyse many ratios, but the six best financial ratios to track for small businesses are quick ratio, debt-to-equity ratio, working capital ratio, gross profit ratio, inventory ratio and return on equity ratio.

How to remember financial ratios? ›

Here are some tips to remember the ratio analysis formulas to analyze financial statements quickly-
  1. Tip 1: Categorize the Ratios. To keep in mind the formulas of the ratio, categorization works well. ...
  2. Tip 2: Writing Down Each Ratio and Start Working on them. ...
  3. Tip 3: Understanding. ...
  4. Tip 4: Use Pictures.
May 7, 2022


Top Articles
Latest Posts
Article information

Author: Dong Thiel

Last Updated:

Views: 5303

Rating: 4.9 / 5 (79 voted)

Reviews: 86% of readers found this page helpful

Author information

Name: Dong Thiel

Birthday: 2001-07-14

Address: 2865 Kasha Unions, West Corrinne, AK 05708-1071

Phone: +3512198379449

Job: Design Planner

Hobby: Graffiti, Foreign language learning, Gambling, Metalworking, Rowing, Sculling, Sewing

Introduction: My name is Dong Thiel, I am a brainy, happy, tasty, lively, splendid, talented, cooperative person who loves writing and wants to share my knowledge and understanding with you.