1.

Liquidity Ratios:

a) Current Ratio:
Formula: Current Assets / Current Liabilities
Interpretation: Measures the company's ability to pay short-term obligations. A ratio greater than
1 indicates sufficient liquidity to cover short-term liabilities.

b) Quick Ratio:
Formula: (Current Assets - Inventory) / Current Liabilities
Interpretation: Similar to the current ratio but excludes inventory. It provides a more conservative
view of a company's short-term liquidity.

2. Profitability Ratios:

a) Net Profit Margin:

Formula: Net Income / Revenue
Interpretation: Indicates the percentage of revenue that remains as profit after expenses. A
higher margin shows better profitability.

b) Return on Assets (ROA):

Formula: Net Income / Total Assets
Interpretation: Measures how effectively a company uses its assets to generate profit. A higher
ROA is generally preferred.

c) Return on Equity (ROE):

Formula: Net Income / Shareholder's Equity
Interpretation: Reflects the return on shareholders' investment. A higher ROE is usually
considered favorable.

3. Solvency Ratios:

a) Debt to Equity Ratio:

Formula: Total Debt / Total Equity
Interpretation: Assesses the financial leverage of a company. A lower ratio is generally
considered safer, as it indicates less reliance on debt.

b) Interest Coverage Ratio:

Formula: Earnings Before Interest and Taxes (EBIT) / Interest Expense
Interpretation: Measures the ability to pay interest on outstanding debt. A higher ratio indicates
better solvency.

4. Efficiency Ratios:
a) Inventory Turnover:
Formula: Cost of Goods Sold / Average Inventory
Interpretation: Shows how many times a company sold its total inventory during a period. A
higher turnover indicates better efficiency.

b) Receivables Turnover:
Formula: Net Credit Sales / Average Accounts Receivable
Interpretation: Measures how efficiently a company collects its receivables. A higher ratio
reflects effective credit management.

5. Market Ratios:

a) Price-to-Earnings (P/E) Ratio:

Formula: Market Price per Share / Earnings per Share (EPS)
Interpretation: Indicates how much investors are willing to pay for a dollar of earnings. A lower
P/E may signal an undervalued company, while a high P/E may indicate overvaluation.

b) Earnings Yield:
Formula: Earnings per Share (EPS) / Market Price per Share
Interpretation: Represents the percentage of each dollar invested that was earned by the
company. The inverse of the P/E ratio, a higher earnings yield is generally considered attractive.

c) Dividend Yield:
Formula: Annual Dividends per Share / Market Price per Share
Interpretation: Shows the return on investment for a dividend stock. A higher dividend yield may
be appealing to income-focused investors.

6. Leverage Ratios:

a) Equity Multiplier:
Formula: Total Assets / Total Equity
Interpretation: Indicates how much of a company's assets are financed by equity. A lower
number is typically considered better as it indicates less financial risk.

7. Activity Ratios:

a) Asset Turnover:
Formula: Sales / Total Assets
Interpretation: Measures how efficiently a company uses its assets to generate sales. Higher
ratios indicate better utilization of assets.

b) Accounts Payable Turnover:

Formula: Cost of Goods Sold / Average Accounts Payable
Interpretation: Shows how quickly a company pays off its suppliers. A higher ratio may indicate
efficient payment practices.

c) Working Capital Turnover:

Formula: Sales / Average Working Capital
Interpretation: Measures how effectively a company is using its working capital to generate
sales. A higher ratio may signal efficient use of working capital.

8. Growth Ratios:

a) Revenue Growth Rate:

Formula: (Current Revenue - Previous Revenue) / Previous Revenue
Interpretation: Represents the percentage increase in revenue from one period to the next.
Positive growth is typically seen as a positive sign.

b) EPS Growth Rate:

Formula: (Current EPS - Previous EPS) / Previous EPS
Interpretation: Indicates the growth in earnings per share. Consistent growth may be viewed
favorably by investors.

9. Valuation Ratios:

a) Price-to-Sales (P/S) Ratio:

Formula: Market Price per Share / Sales per Share
Interpretation: Compares a company's stock price to its revenues. A lower P/S ratio might
indicate that the stock is undervalued.

b) Price-to-Book (P/B) Ratio:

Formula: Market Price per Share / Book Value per Share
Interpretation: Compares a stock's market value to its book value. A lower P/B ratio could signify
an undervalued stock.

c) Price-to-Cash Flow Ratio:

Formula: Market Price per Share / Cash Flow per Share
Interpretation: Measures the market's expectations of a firm's future financial health. A lower
ratio may indicate a potentially undervalued company.

10. Dividend Ratios:

a) Payout Ratio:
Formula: Dividends / Net Income
Interpretation: Represents the portion of earnings paid out as dividends. A lower ratio might
indicate that the company is reinvesting more in growth.