Ratios That Tell a Story

Remember the basics. Need the definitions of the ratio families first? Start here → Financial ratio analysis. This section assumes you already know how to calculate them.

Calculating a ratio is arithmetic, and AI does it instantly. The skill that firms actually pay for is reading a wall of ratios and knowing, quickly, what story they tell about the business. So we do not ask "what is the current ratio." We ask:

What is this company's health, and which three numbers prove it?

The decisions that carry the weight

A fast, defensible read rests on a few judgments.

• Which ratios matter for this company. A capital-heavy manufacturer and a software business are healthy in completely different ways. Pick the operational ratios that describe how this specific firm makes money, and ignore the ones that do not.
• NOPAT over reported profit. Net operating profit after tax strips out financing and one-off noise, so you compare the actual operating engine rather than the accounting around it. When you want to know if the business itself is working, this is the number.
• Working capital as the early warning. Days sales outstanding, inventory turnover, and payables timing show whether growth is funding itself or quietly consuming cash. A company can look profitable and still be running out of money.

How to structure it

Do not present forty ratios. Group them by the question they answer, profitability, efficiency, liquidity, leverage, and lead with the two or three that decide the verdict. Every ratio should sit next to its comparison, the company's own history or its peers, because a ratio with nothing to compare against says nothing.

What excellent looks like

A weak analysis recites ratios. An excellent one delivers a verdict and defends it: "this business is healthy on margins but its working capital is deteriorating, and here are the three numbers that show it." You reached a clear conclusion, you can point to the evidence, and you did it fast enough to walk into the meeting ready.

Where the Skill multiplies you

Pulling, normalising, and peer-comparing ratios by hand is slow, so most analysts check a handful and miss the pattern. The Financial Analysis Skill, built on Claude for Financial Services, changes the ceiling: compute the full ratio set, benchmark it against peers, and surface the two or three that actually move the verdict, in the time it once took to build one comparison. You still decide what the story is. You just see far more of the evidence before you decide.

Adapting the Skill

Every industry has its own tells, so the Skill is a starting point, not a stamp. Adjust which ratios it prioritises and which peer set it compares against for the sector in front of you. A tool you tuned to the business is the one whose verdict you can defend.