5 Financial Ratios You Should Know About
ASSET TURNOVER RATIO:
This ratio is an indicator of how efficiently a company is deploying its assets to generate revenue, thus reflecting its performance. The higher the ratio, the better the company is performing.
CURRENT RATIO:
The current ratio is a liquidity ratio which shows a company’s ability to clear its short term liabilities with its short term assets. A higher figure signals that day-to-day activities of the company will not be affected by working capital issues.
DEBT TO EQUITY RATIO:
To run a business, a company may raise a mix of debt i.e. borrowed capital, and equity i.e. shareholder’s capital. This ratio helps one analyse how aggressively a company is financing its growh with debt vis-a-vis its equity component. A high debt-to-equity ratio is not desirable.
RETURN ON EQUITY RATIO:
This ratio helps in analysing how much profit a company is generating on each rupee invested in it. lt is used to study and compare the profitability of companies that exist in the same industry. A high ratio indicates better utilisation of a shareholder’s money.
PRICE TO EARNINGS RATIO:
P/E Ratio indicates how much an investor is paying for every rupee of earnings- The ratio is commonly used as a benchmark for comparisons between stocks before investing. lt also indicates if the market is overvaluing or undervaluing the company.