Common Industry Financial Ratios

It's All About Your Numbers

Financial ratios are important tools for analyzing and assessing the financial health and performance of a company. They provide valuable insights into various aspects of a company’s operations, profitability, liquidity, solvency, and efficiency. Here are some common financial ratios used in financial analysis:

  1. Liquidity Ratios:
    • Current Ratio: Current Assets / Current Liabilities
    • Quick Ratio (Acid-Test Ratio): (Current Assets – Inventory) / Current Liabilities
  2. Profitability Ratios:
    • Gross Profit Margin: (Gross Profit / Revenue) x 100
    • Net Profit Margin: (Net Profit / Revenue) x 100
    • Return on Assets (ROA): (Net Income / Total Assets) x 100
    • Return on Equity (ROE): (Net Income / Shareholders’ Equity) x 100
    • Earnings Per Share (EPS): (Net Income – Preferred Dividends) / Average Outstanding Shares
  3. Solvency Ratios:
    • Debt-to-Equity Ratio: Total Debt / Shareholders’ Equity
    • Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense
  4. Efficiency Ratios:
    • Inventory Turnover: Cost of Goods Sold / Average Inventory
    • Accounts Receivable Turnover: Net Sales / Average Accounts Receivable
    • Asset Turnover: Revenue / Average Total Assets
  5. Valuation Ratios:
    • Price-to-Earnings Ratio (P/E): Market Price per Share / Earnings Per Share
    • Price-to-Book Ratio (P/B): Market Price per Share / Book Value per Share
    • Price-to-Sales Ratio (P/S): Market Price per Share / Revenue per Share
    • Enterprise Value-to-EBITDA (EV/EBITDA): Enterprise Value / Earnings Before Interest, Taxes, Depreciation, and Amortization
  6. Dividend Ratios:
    • Dividend Yield: (Dividend per Share / Market Price per Share) x 100
    • Dividend Payout Ratio: (Dividends / Net Income) x 100
  7. Market Ratios:
    • Market Capitalization: Market Price per Share x Total Outstanding Shares
    • Book Value: Total Shareholders’ Equity / Total Outstanding Shares
  8. Operating Ratios:
    • Operating Margin: (Operating Income / Revenue) x 100
    • Operating Cash Flow Ratio: Operating Cash Flow / Revenue

These ratios help investors, analysts, and stakeholders assess a company’s financial performance, risk, and overall health. It’s important to note that the significance of these ratios can vary depending on the industry and company size, so they should be used in conjunction with industry benchmarks and qualitative analysis for a comprehensive evaluation.