Financial Ratios Cheat Sheet: Every Formula You Need
Profitability Ratios
These measure how effectively a company converts revenue into profit. See the full breakdown on the Profitability Ratios Cheat Sheet.
| Ratio | Formula | What It Tells You |
|---|---|---|
| Gross Margin | (Revenue − COGS) / Revenue | Pricing power and production efficiency |
| Operating Margin | Operating Income / Revenue | Core business profitability after OpEx |
| Net Margin | Net Income / Revenue | Bottom-line profitability |
| ROE | Net Income / Shareholders’ Equity | Return generated on owners’ capital |
| ROA | Net Income / Total Assets | How efficiently assets generate profit |
| ROIC | NOPAT / Invested Capital | Return on all capital deployed (debt + equity) |
Liquidity Ratios
These assess a company’s ability to meet short-term obligations. Full details on the Liquidity Ratios Cheat Sheet.
| Ratio | Formula | What It Tells You |
|---|---|---|
| Current Ratio | Current Assets / Current Liabilities | General short-term solvency (target: 1.5–2.0x) |
| Quick Ratio | (Current Assets − Inventory) / Current Liabilities | Immediate liquidity without selling inventory |
| Cash Ratio | Cash & Equivalents / Current Liabilities | Most conservative liquidity measure |
| Working Capital | Current Assets − Current Liabilities | Dollar amount of short-term financial cushion |
Leverage Ratios
These evaluate how much debt a company uses and its ability to service it. See the Leverage Ratios Cheat Sheet.
| Ratio | Formula | What It Tells You |
|---|---|---|
| Debt-to-Equity | Total Debt / Shareholders’ Equity | Financial leverage level |
| Debt-to-Assets | Total Debt / Total Assets | Percentage of assets financed by debt |
| Interest Coverage | EBIT / Interest Expense | Ability to cover interest payments (higher = safer) |
| Debt/EBITDA | Total Debt / EBITDA | How many years of earnings to repay debt |
Efficiency Ratios
These measure how well a company uses its assets. Detailed coverage on the Efficiency Ratios Cheat Sheet.
| Ratio | Formula | What It Tells You |
|---|---|---|
| Asset Turnover | Revenue / Average Total Assets | Revenue generated per dollar of assets |
| Inventory Turnover | COGS / Average Inventory | How quickly inventory is sold |
| Receivables Turnover | Revenue / Average Accounts Receivable | How quickly customers pay |
| Payables Turnover | COGS / Average Accounts Payable | How quickly the company pays suppliers |
| Cash Conversion Cycle | DIO + DSO − DPO | Days to convert inventory investment into cash |
Valuation Ratios
These help determine whether a stock is cheap or expensive. Full list on the Valuation Ratios Cheat Sheet.
| Ratio | Formula | What It Tells You |
|---|---|---|
| P/E Ratio | Share Price / EPS | Price paid per dollar of earnings |
| PEG Ratio | P/E / Earnings Growth Rate | P/E adjusted for growth — closer to 1.0 is fair |
| P/B Ratio | Share Price / Book Value per Share | Price vs. accounting value of equity |
| P/S Ratio | Share Price / Revenue per Share | Useful for unprofitable high-growth companies |
| EV/EBITDA | Enterprise Value / EBITDA | Capital-structure-neutral valuation multiple |
| Dividend Yield | Annual Dividend / Share Price | Income return on the stock |
| FCF Yield | Free Cash Flow / Market Cap | Cash generation relative to price |
How to Use Financial Ratios Effectively
Ratios are most useful in context. Compare a company’s ratios against its own history (trend analysis), its peers (relative analysis), and industry benchmarks. A single ratio in isolation can mislead — for example, a high ROE driven by excessive leverage is riskier than the same ROE driven by operating efficiency.
Pair ratios from different categories: a company with strong profitability but weak liquidity may be growing too aggressively. One with great efficiency but poor margins might be competing on volume alone.
Key Takeaways
- Financial ratios fall into five categories: profitability, liquidity, leverage, efficiency, and valuation.
- Always compare ratios to peers, industry benchmarks, and the company’s own trend.
- No single ratio tells the full story — cross-category analysis is essential.
- Watch for ratio distortions from stock-based compensation, one-time charges, and different accounting methods.
- Use the sub-pages linked above for deep dives into each ratio category.
Frequently Asked Questions
What are the most important financial ratios?
It depends on the analysis. For profitability: ROE and operating margin. For solvency: debt-to-equity and interest coverage. For valuation: EV/EBITDA and FCF yield. Start with these six and expand as needed.
How many financial ratios should I analyze?
Quality over quantity. Five to ten well-chosen ratios across categories give you a solid picture. Analyzing 30 ratios without context is less useful than deeply understanding five.
Can financial ratios be manipulated?
Yes. Management can use aggressive revenue recognition, capitalize expenses, or use off-balance-sheet structures to make ratios look better. Always cross-reference with free cash flow — cash is harder to fake.
Do financial ratios differ by industry?
Absolutely. Capital-intensive industries (utilities, manufacturing) have different normal ranges than asset-light businesses (software, consulting). Always compare within the same sector.
Where can I find financial ratio data?
Company filings (10-K, 10-Q) are the primary source. Financial data providers like Bloomberg, Capital IQ, and free tools like FRED, Macrotrends, and Yahoo Finance provide pre-calculated ratios.