• Understanding Fundamental Analysis

Some Common Financial Ratios

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• May 05 2024

Study of The Financial Ratios: Some Common Financial Ratios

• Liquidity Ratios:

  These ratios show how well a company can meet its short-term commitments.
  Current Ratio: Current Assets / Current Liabilities
  Quick Ratio (or Acid-Test Ratio): (Current Assets - Inventory) / Current Liabilities

• Solvency Ratios:

  These ratios show how well a company can handle its long-term responsibilities.
  Debt-to-Equity Ratio: Total Debt / Total Equity
  Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense

• Profitability Ratios:

  With these numbers, you can figure out how profitable a company is.
  Gross Profit Margin: (Gross Profit / Revenue) * 100
  Net Profit Margin: (Net Income / Revenue) * 100
  Return on Equity (ROE): Net Income / Average Shareholders' Equity

• Efficiency Ratios:

  With these numbers, you can see how well a business uses its resources.
  Inventory Turnover Ratio: Cost of Goods Sold / Average Inventory
  Accounts Receivable Turnover Ratio: Revenue / Average Accounts Receivable

• Market Ratios:

  These numbers figure out how much a company's shares are worth on the market.
  Price-to-Earnings (P/E) Ratio: Market Price per Share / Earnings per Share
  Price-to-Book (P/B) Ratio: Market Price per Share / Book Value per Share