Ratios are fundamental tools in financial analysis that provide insights into a company’s performance, financial health, and valuation. They help investors, analysts, and financial professionals assess various aspects of a company’s operations and make informed decisions. Here are some common ratios used in financial calculations:

**1. **Liquidity Ratios:**

**Current Ratio:**Current Assets / Current Liabilities – Measures short-term liquidity and the ability to cover short-term obligations.**Quick Ratio (Acid-Test Ratio):**(Current Assets – Inventory) / Current Liabilities – Measures short-term liquidity without considering inventory.

**2. **Profitability Ratios:**

**Gross Profit Margin:**(Gross Profit / Revenue) x 100 – Indicates the profitability of core operations.**Net Profit Margin:**(Net Income / Revenue) x 100 – Measures overall profitability.**Return on Assets (ROA):**(Net Income / Total Assets) – Measures profitability relative to total assets.**Return on Equity (ROE):**(Net Income / Shareholders’ Equity) – Measures profitability relative to shareholders’ equity.

**3. **Efficiency Ratios:**

**Inventory Turnover:**Cost of Goods Sold / Average Inventory – Measures how quickly inventory is sold.**Accounts Receivable Turnover:**Revenue / Average Accounts Receivable – Measures the efficiency of collecting receivables.**Asset Turnover:**Revenue / Average Total Assets – Evaluates how efficiently assets are used to generate sales.

**4. **Leverage Ratios:**

**Debt to Equity Ratio:**Total Debt / Shareholders’ Equity – Evaluates the level of financial leverage.**Interest Coverage Ratio:**Earnings Before Interest and Taxes (EBIT) / Interest Expense – Assesses the ability to cover interest payments.

**5. **Valuation Ratios:**

**Price-to-Earnings (P/E) Ratio:**Market Price per Share / Earnings per Share – Measures stock price relative to earnings.**Price-to-Sales (P/S) Ratio:**Market Price per Share / Revenue per Share – Assesses stock price relative to revenue.**Price-to-Book (P/B) Ratio:**Market Price per Share / Book Value per Share – Compares stock price to the book value of equity.

**6. **Coverage Ratios:**

**Times Interest Earned (TIE) Ratio:**EBIT / Interest Expense – Measures the ability to cover interest payments.

**7. **Dividend Ratios:**

**Dividend Yield:**Dividends per Share / Market Price per Share – Indicates the dividend income relative to the stock’s price.**Payout Ratio:**Dividends per Share / Earnings per Share – Measures the portion of earnings paid out as dividends.

**8. **Market Ratios:**

**Market Capitalization:**Market Price per Share x Total Outstanding Shares – Calculates the total market value of a company’s equity.**Enterprise Value:**Market Capitalization + Total Debt – Cash & Cash Equivalents – Represents the theoretical takeover price for the entire company.

These ratios provide a broad range of insights into a company’s financial performance, risk, and valuation. Depending on the specific questions or objectives of the analysis, different ratios may be more relevant. Financial analysts often use a combination of ratios and other financial metrics to assess a company comprehensively. Comparing a company’s ratios to industry benchmarks and historical performance can also provide valuable context for interpretation.