What is Financial Ratios?
A financial ratio refers to a specific numerical value that represents a company’s financial performance indicator. It helps compare financial health across periods or competitors, guiding investors and managers in decision-making by highlighting strengths, weaknesses, and overall financial stability through measurable benchmarks.
Financial Ratios Calculator
Use this calculator to effortlessly measure your business cash flow and gain a clear view of your available funds.
Financial ratios inputs:
This ratio measures profitability at the gross level: your sales minus cost of goods sold divided by sales.
Operating profit margin shows how much of sales remains after operating expenses (before interest and tax).
Net profit margin is net income divided by sales — the percentage of revenue left after all expenses, including interest and other income.
The current ratio helps determine if you have enough working capital to meet short-term obligations.
Also called acid-test; quick ratio excludes inventory to measure immediate ability to pay liabilities.
Shows the number of times inventory is 'turned over' in a period.
A measure of how efficiently you collect receivables.
Net income divided by total assets — shows how effectively assets generate profit.
Total liabilities divided by net worth (equity). Higher values mean more leverage.
Working capital is current assets minus current liabilities — a raw dollar amount of short-term liquidity.
| Total current assets | |
| Total current liabilities | |
| Total long term assets | |
| Total long term liabilities | |
| Sales | |
| Receivables | |
| Cost of goods sold | |
| Operating expenses | |
| Interest expense | |
| Inventory | |
| Other income |
Why Do We Use It?
Financial ratios help evaluate a company’s profitability, liquidity, efficiency, and stability. They turn raw financial data into clear insights, making it easier to compare performance across periods or competitors. Investors, managers, and analysts use them to identify trends, spot risks, and make informed strategic, or investment decisions based on measurable indicators.
How to Calculate Financial Ratios?
- Gather the company’s income statement, balance sheet, and cash flow statement for the relevant period.
- Decide which financial ratio you want to calculate, profitability, liquidity, solvency, or efficiency.
- Use the formula like, Current Ratio = Current Assets – Current Liabilities
- Pull the necessary data from the financial statement like, total assets, net income, or revenue.
- Compare the ratio against industry benchmarks or past performance to evaluate financial strength or improvement areas.
Financial Ratio Formula:
- Liquidity Ratios: Current Ratios = Current Assets – Current Liabilities
- Leverage Ratios: Debt to Equity = Total Debt / Shareholders Equity
- Efficiency Ratios: Asset Turnover = Net Sales / Average Total Sales
- Profitability Ratios: Operating Margin = Operating Income / Net Sales
- Market Value Ratios: P/E Ratio = Share Price / Earnings Per Share
Better Insights = Better Business Decisions
Making good business decisions begins with good insights. Whiz Consulting offers expert accounting and financial services tailored to your needs.