Master key financial ratios to quickly assess profitability, liquidity, leverage, and valuation of stocks
💰
(Revenue - COGS) / Revenue × 100
📊 Higher is better. >40% excellent. Shows pricing power.
💡 Asian Paints: ~50%, indicates strong brand pricing power
⚙️
Operating Profit / Revenue × 100
📊 Core business profitability. >15% good, >20% excellent.
💡 TCS: ~25%, shows operational efficiency in IT services
🎯
Net Profit / Revenue × 100
📊 Final profitability. >10% good, >15% excellent.
💡 Infosys: ~18%, indicates strong bottom-line profitability
👑
Net Profit / Shareholders Equity × 100
📊 Warren Buffett favorite. >15% good, >20% excellent.
💡 HDFC Bank: ~17%, efficiently uses shareholder capital
🏭
Net Profit / Total Assets × 100
📊 Asset utilization efficiency. >5% good. Compare within sector.
💡 Maruti: ~8%, good for capital-intensive auto sector
⚡
EBIT / Capital Employed × 100
📊 Best profitability metric. >15% good, >20% excellent.
💡 Nestle: ~100%+, exceptional capital efficiency
💧
Current Assets / Current Liabilities
📊 Ideal: 1.5 to 3. <1 means liquidity concerns.
✅ Above 2 = good short-term financial health
⚡
(Current Assets - Inventory) / Current Liabilities
📊 Stricter than current ratio. >1 is good.
✅ Critical for assessing immediate liquidity
💵
Cash + Cash Equivalents / Current Liabilities
📊 Most conservative. >0.5 indicates strong position.
✅ Shows ability to pay off short-term debt immediately
🔄
Current Assets - Current Liabilities
📊 Positive is essential. Growing = healthy operations.
✅ Negative working capital red flag (except some business models)
⚖️
Total Debt / Shareholders Equity
📊 <1 good, <0.5 excellent. Sector-dependent.
✅ Banks/NBFCs naturally high. IT companies low.
🏛️
Total Debt / Total Assets
📊 <0.5 preferred. Shows financial leverage.
✅ Lower indicates less financial risk
💳
EBIT / Interest Expense
📊 >3 good, >5 comfortable, >7 excellent.
✅ Can company comfortably pay interest?
🏦
Operating Income / Total Debt Service
📊 >1.25 preferred. Measures debt repayment ability.
✅ Important for real estate and capital-intensive sectors
📊
Market Price / EPS
📊 Compare with sector average. <15 value, >25 growth.
💡 IT sector: 20-30, FMCG: 40-60. Sector matters!
📚
Market Price / Book Value per Share
📊 <1 undervalued (or distressed), >3 premium valuation.
💡 Banks: 1-3, Asset-heavy companies: <2 preferred
💹
Market Cap / Revenue
📊 Useful for loss-making or early-stage companies.
💡 Tech startups: 5-10, Mature companies: 1-3
🎯
P/E Ratio / Earnings Growth Rate
📊 <1 undervalued, 1 fair, >1 overvalued.
💡 Peter Lynch metric. Accounts for growth prospects.
💎
Annual Dividend / Market Price × 100
📊 >2% good for dividend investors. 4%+ excellent.
💡 ITC, Coal India known for high dividend yields (5-7%)
🏢
Enterprise Value / EBITDA
📊 Better than P/E for comparing companies with different capital structures.
💡 <10 undervalued, >15 expensive. Sector-dependent.
🔗
Combine multiple ratios. High ROE with high debt is risky.
⚖️
IT and banks have different normal ratios. Don't compare across sectors.
📈
Improving ratios > absolute values. Declining ROE is red flag.
🖥️
All ratios pre-calculated. Compare with sector peers instantly.
👔
Great ratios with poor management = bad investment.
🔄
Cyclicals (metals) have volatile ratios. Stable (FMCG) have consistent ratios.