How to analyze a company in less than 5 minutes:

Study these ratios:

💡Efficiency Ratios

• Inventory Turnover: Cost of Goods Sold ÷ Inventory

Measures how many times a company's inventory is sold and replaced over a period.

• Asset Turnover: Sales ÷ Total Assets

Measures a firm's efficiency at using its assets in generating sales or revenue.

🚰 Liquidity Ratios

• Current Ratio: Current Assets ÷ Current Liabilities

Measures a company's ability to pay short-term obligations.

• Quick Ratio: (Current Assets - Inventory) ÷ Current

Another liquidity ratio, but excludes inventory as it is less liquid.

☔ Coverage Ratios

• Interest Coverage Ratio: EBIT ÷ Interest Expenses

Measures how easily a company can pay interest expenses on outstanding debt.

💰Profitability Ratios

• Return on Assets (ROA): Net Income ÷ Total Assets

Measures how efficiently a company uses its assets to generate income.

• Return on Equity (ROE): Net Income ÷ Shareholder's Equity

Measures how efficiently a company uses its equity to generate income.

• Gross Margin: Gross Profit ÷ Revenue

Measures how much out of every dollar of sales a company keeps as gross profit.

• Net Profit Margin: Net Income ÷ Revenue

Measures how much out of every dollar of sales a company keeps as earnings.

💸 Dividend Policy Ratios

• Dividend Payout Ratio: Dividends ÷ Net Income

Measures what proportion of earnings are paid to shareholders as dividends.

• Dividend Yield: Annual Dividends per Share ÷ Price per Share

Shows how much a company returns in dividends each year relative to its share price.

🛠️ Leverage Ratios

• Debt to Equity Ratio: Total Debt ÷ Total Equity

A leverage ratio that compares a company's total debt with its total equity.

📈 Market Value Ratios

• Earnings Per Share (EPS): Net Income ÷ Shares Outstanding

Measures the profit allocated to each share of common stock.

• Price to Earnings Ratio (P/E): Share Price ÷ Earnings per Share

Measures the price you pay for each dollar of earnings.

• Price to Sales (P/S): Share Price ÷ Sales Per Share

Compares a company's market value to its sales.

What ratios do you use?

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