Key Financial Ratios Every Investor Should Know
A handful of ratios can tell you a lot about a company’s value, profitability and health. Here are the essentials.
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You don’t need to be an analyst to size up a company — a few financial ratios reveal a lot about its value, profitability and risk. Here are the essentials, grouped by what they measure.
Valuation — is it cheap or expensive?
- P/E ratio — price relative to earnings; compare with peers and history.
- P/B ratio — price relative to book value, useful for banks and asset-heavy firms.
- Dividend yield — income relative to price.
Profitability — how well does it earn?
- ROE — profit generated on shareholders’ equity.
- ROCE — return on all capital employed; good for comparing across firms.
- Margins — the share of revenue that becomes profit.
Financial health — can it withstand stress?
- Debt-to-equity — how much the company relies on borrowing.
- Current ratio — short-term assets vs short-term liabilities.
- Interest coverage — how easily profits cover interest.
Use them together
No single ratio tells the whole story — read them as a set, over several years, and against peers. Pair this with the balance sheet and annual report. Education only, not a recommendation.
