Wiki · Remember the basics
Financial Ratio Analysis
Reading a company's health by comparing line items from its statements as ratios, so raw numbers become signals you can compare over time and across peers.
Financial ratio analysis turns the raw numbers in a company's statements into ratios that reveal how the business actually runs. A single figure like revenue tells you little on its own; a ratio puts it in context.
The main families:
- Profitability — how much profit the company keeps from each euro of sales (e.g. gross margin, NOPAT margin).
- Efficiency / operational — how well it uses its assets and working capital (e.g. inventory turnover, days sales outstanding).
- Liquidity — whether it can cover short-term obligations (e.g. current ratio).
- Leverage — how much it relies on debt (e.g. debt-to-equity, interest coverage).
The point is comparison: a ratio only means something against the company's own history or against its peers.
That is the definition. Turning a wall of ratios into a fast, defensible read of a company is the harder skill, and that is what the Ratios That Tell a Story section is about.