Financial Ratios Cheat Sheet: A Quick Reference Guide

A financial ratios cheat sheet is a valuable tool for anyone looking to quickly evaluate a company's financial health. It helps you compare key financial metrics to industry averages and make informed decisions.

The Debt-to-Equity Ratio is a crucial metric to track, as it shows the proportion of debt to equity in a company's capital structure. A higher ratio indicates a higher level of debt.

A low Current Ratio, typically below 1, can be a sign of liquidity issues. This is because it indicates that a company's current assets are not sufficient to cover its current liabilities.

The Price-to-Earnings (P/E) Ratio helps investors determine if a stock is overvalued or undervalued. A higher P/E ratio generally indicates a higher stock price relative to earnings.

Suggestion: Synchrony Financial Share Price

A financial ratios cheat sheet is a handy tool that helps you quickly calculate and compare various financial metrics. It's like a recipe card for your financial analysis.

The cheat sheet covers five main categories: Liquidity, Solvency, Profitability, Efficiency, and Market Value. Each category has its own set of ratios that provide valuable insights into a company's financial health.

Liquidity ratios, for example, help you understand a company's ability to pay its short-term debts. The Current Ratio is a key metric here, which is calculated by dividing Current Assets by Current Liabilities.

Solvency ratios, on the other hand, focus on a company's ability to meet its long-term obligations. The Debt to Equity Ratio is a critical metric in this category, which is calculated by dividing Total Liabilities by Shareholders' Equity.

Profitability ratios are used to evaluate a company's ability to generate profits from its sales. The Gross Profit Margin, for instance, is calculated by dividing Gross Profit by Sales, and then multiplying by 100.

Efficiency ratios help you understand how well a company is using its assets and resources. The Inventory Turnover Ratio, for example, is calculated by dividing Cost of Goods Sold by Average Inventory.

Market Value ratios provide insights into a company's stock price and its valuation. The Price to Earnings (P/E) Ratio, for instance, is calculated by dividing Share Price by Earnings Per Share (EPS).

On a similar theme: Enterprise Value-to-sales Ratio

Here's a summary of the five categories and their respective ratios:

There are five main categories of financial ratios that help assess a company's financial health. These categories are a great starting point for anyone looking to learn about financial ratios.

Liquidity Ratios measure a company's ability to pay its short-term debts. Solvency Ratios, on the other hand, evaluate a company's ability to meet its long-term obligations.

Profitability Ratios help determine whether a company is generating enough income to cover its expenses. Efficiency Ratios measure how well a company uses its resources to produce its products or services.

Market Ratios are used to analyze a company's market position and performance. These categories provide a solid foundation for understanding financial ratios and their applications.

Here are the five main categories of financial ratios:

Profitability Ratios are a crucial set of indicators that help you understand how well your business is performing in terms of generating earnings relative to various aspects of its operations, such as sales, assets, and equity.

These ratios are reflections of your business strategy's effectiveness, pricing policies, and overall operational efficiency. They help you pinpoint areas where you can reduce costs, adjust pricing, or optimize operations to boost profitability.

Gross Profit Margin is a key ratio that reveals the efficiency of your production process by comparing gross profit (sales minus cost of goods sold) to sales. A higher percentage means you're retaining more from each dollar of sales to cover other costs.

Here are some common profitability ratios and their targets:

These targets can help you gauge your business's performance and identify areas for improvement. Remember, profitability ratios are a key indicator of success and sustainability in business.