5 most important

financial ratios to
analyze a company
 1) Current ratio: By this
ratio we understand the
liquidity position of the
company, which is
calculated as follows:

Current assets/Current
liabilities
 2) Debt to equity ratio:
The ratio of long-term
debt (Loan funds) to
equity (Share capital and
reserves and surplus) is
known as debt-to-equity
ratio, calculated as

Long term debt/

shareholder's fund
 3) Return on capital
employed (ROCE): It is
calculated as EBIT divided
by total capital employed
where total capital
employed is sum of
shareholder's fund and non-
current liabilities.
4) Inventory turnover ratio:
The ratio determines the
number of times inventory
(goods) was manufactured
and sold. It is calculated as,

COGS/ Average inventory

 5) Price to earnings ratio
(P/E ratio):
It is calculated as current
market price per share
divided by earnings per
share. Also, to check
whether a stock is
undervalued or overvalued it
should be compared to the
industry P/E.
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