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Financial Ratio Analysis

Business analysisFinancial analysis

Reference model

Financial Ratios OverviewA canvas of 12 boxes laid out on a grid of 4 columns and 3 rows: Liquidity Ratios, Profitability Ratios, Efficiency Ratios, Solvency Ratios, Current Ratio, Net Profit Margin, Asset Turnover Ratio, Debt to Equity Ratio, Quick Ratio, Return on Assets (ROA), Inventory Turnover Ratio, Interest Coverage Ratio.Liquidity RatiosMeasure the ability tomeet short-termobligations.ProfitabilityRatiosAssess the ability togenerate profitrelative to revenue orassets.Efficiency RatiosEvaluate howeffectively a companyutilizes its assets.Solvency RatiosDetermine the company'sability to meetlong-term debts.Current RatioCurrent assets dividedby current liabilities.Net Profit MarginNet income divided byrevenue.Asset TurnoverRatioRevenue divided bytotal assets.Debt to EquityRatioTotal liabilitiesdivided by shareholderequity.Quick Ratio(Current assets -inventories) / currentliabilities.Return on Assets(ROA)Net income divided bytotal assets.Inventory TurnoverRatioCost of goods solddivided by averageinventory.Interest CoverageRatioEarnings beforeinterest and taxesdivided by interestexpenses.

Financial ratios provide insights into profitability, liquidity, efficiency, and solvency.

About this model

A method that uses ratios derived from financial statements to evaluate a company's performance and financial position.

Originator not stated.

How to read it

  • Look for significant deviations from industry averages.
  • Identify trends over time to assess performance stability.

What this does

Evaluates a company's financial performance by comparing key financial ratios to industry benchmarks or historical data.

When to use it

Use it when assessing a company's financial health and operational efficiency to inform investment or management decisions.

Not when: Do not use it when financial statements are incomplete or when the company operates in a unique market without relevant benchmarks.

What happens next

Consider conducting a trend analysis to see how ratios change over time.

Golden thread

Builds on ←

  • Financial statements
  • Industry benchmarks

Feeds into →

  • Financial health report

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Drafted with AI and reviewed by Eccellere on 04/11/2026. Guidance, not advice: apply your own judgement.