Business Financial Ratio Analysis Guide
Categories, ratios, methods, and interpretations.
Ratio Categories
Profitability ratios
Examples: Margin, ROI, ROE
Purpose: Earning ability
Liquidity ratios
Examples: Current, quick ratios
Purpose: Short-term health
Efficiency ratios
Examples: Turnover ratios
Purpose: Asset utilization
Solvency ratios
Examples: Debt, leverage ratios
Purpose: Long-term stability
Key Ratios
1. Gross profit margin
2. Net profit margin
3. Return on assets
4. Return on equity
5. Current ratio
6. Quick ratio
7. Asset turnover
8. Inventory turnover
9. Debt-to-equity ratio
10. Interest coverage ratio
Analysis Methods
Trend analysis
Approach: Compare over time
Benefit: Progress tracking
Industry benchmark
Approach: Compare to peers
Benefit: Market position
Target comparison
Approach: Compare to goals
Benefit: Goal achievement
DuPont analysis
Approach: Decompose ROE
Benefit: Component insight
Ratio Interpretations
1. Ratio above benchmark
2. Ratio below benchmark
3. Ratio trending upward
4. Ratio trending downward
5. Ratio within target range
6. Ratio outside target
7. Ratio improvement needed
8. Ratio maintaining stability
Financial Ratio Analysis Checklist
1. Calculate all relevant ratios. 2. Apply trend analysis. 3. Compare to industry benchmarks. 4. Evaluate against targets. 5. Use DuPont decomposition. 6. Interpret ratio signals. 7. Identify improvement areas. 8. Develop action plans. 9. Monitor ratio changes. 10. Report ratio findings. Financial ratio analysis = business insight. Ratios calculated. Trends applied. Benchmarks compared. Targets evaluated. DuPont used. Signals interpreted. Areas identified. Plans developed. Changes monitored. Findings reported.