7 Important Financial Ratios (2024)

FAQs

What are the 7 types of ratio analysis? ›

The classification of ratio analysis includes several types of ratios analysis, Liquidity Ratios, Solvency Ratios, Profitability Ratios, Efficiency Ratios, Coverage Ratios, and Market Prospect Ratios. Each category of ratios provides information about different aspects of the firm's financial performance.

Tip 2: Writing Down Each Ratio and Start Working on them.

Instead, you can write down the ratio and work on each ratio with different numbers until you remember the formula. By doing this, you will be able to remember the formulas easily.

Gauge your progress by tracking your emergency fund ratio, basic housing ratio, overall debt-to-income ratio and savings rate. Additionally, consider tracking your debt-to-total assets ratio, net-worth-to-total assets ratio, return-on-investments ratio and investment-assets-to-gross-pay ratio.

In simple words, a financial ratio involves taking one number from a company's financial statements and dividing it by another. The resulting answer gives you a metric that you can use to compare companies to evaluate investment opportunities.

Common ratios to analyze banks include the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the efficiency ratio, the loan-to-deposit ratio (LDR), and capital ratios.

Learn how these five key ratios—price-to-earnings, PEG, price-to-sales, price-to-book, and debt-to-equity—can help investors understand a stock's true value. Figuring out a stock's value can be as simple or complex as you make it. It depends on how much depth of perspective you need.

Ratios compare two numbers, usually by dividing them. If you are comparing one data point (A) to another data point (B), your formula would be A/B. This means you are dividing information A by information B. For example, if A is five and B is 10, your ratio will be 5/10.

What Is a Good Quick Ratio? A quick ratio that is equal to or greater than 1 means the company has enough liquid assets to meet its short-term obligations.

Tip 1: In ratio, if both the antecedent and the consequent are multiplied or divided by the same number (except 0) then the ratio will remain the same. Tip 2:If a proportion is such as a:x::x:b then x is called the mean proportional or second proportional of a and b.

Like fractions, ratios can often be simplified. To simplify a ratio, divide all parts of the ratio by their highest common factor. For example, the highest common factor of both parts of the ratio 4:2 is 2 , so 4:2=2:1 4 : 2 = 2 : 1 .

What is the 70 20 10 financial ratio? ›

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

There are six basic ratios that are often used to pick stocks for investment portfolios. Ratios include the working capital ratio, the quick ratio, earnings per share (EPS), price-earnings (P/E), debt-to-equity, and return on equity (ROE).