There are financial ratios which are more commonly and more often used than others. Such ratios that we have come across are as follows (in no particular order of preference):
- ROA (net income / total or average assets) – ROA indicates company’s profitability in relation to its assets.
- ROE (net income / total or average equity) – ROE indicates the profitability of the money invested into the entity by its shareholders.
- ROI (gain from investments less cost of investments divided by cost of investments) – ROI indicates an efficiency of an investment.
- Current ratio (current assets / current liabilities) – Current ratio estimates the ability of a company to pay back its short-term obligations.
- Quick ratio (current assets less inventories divide by current liabilities) – Quick ratio reflects on the company’s ability to meet its short-term obligations with its most liquid assets (that is those assets which are current and are not inventories).
- Gross margin (gross profit / net income) – Gross margin indicates how much the company earns from its pure operations (that is net revenue less cost of goods and services sold) before any operational expenses.
Obviously, as we’ve always mentioned, your business segment may have other types of ratios relevant for them.