List of All Financial Key Ratios And When to Use Them

A calculator, pen and notebook — List of All Financial Key Ratios And When to Use Them
Last updated: Jul 3, 2022

Why use key ratios? A Multiplier Approach is the fastest and first step toward evaluating a company.

And can give a quick insight into if the company is even worth our time to do a deeper analysis or if we should ignore it.

Every great investor has used at least some key ratios in their strategies. So Key Ratios are fundamental to know for everyone before buying stocks.

Remember no single financial key ratio can tell the whole story and more is needed to tell the whole story. They all have pros and cons.

I know the basic key ratios why do I need to know more?

Every company writes stuff based on what suits their needs the best. This is why it can make sense to ignore some of them.

The more “advanced” key ratios do that and ignore some of the information.

But at the same time, it can make their ratios look even better. This is why it’s important to compare some key ratios to different once that try to calculate the same thing.

Any single ratio can show a misleading picture of the company.

Different kinds of price

Market Value

Market Value Per Share = Current Stock Price (P)

Is found by going to any financial website and putting in the company name or ticker

Market Cap = Share * Number of Shares

EV Enterprice Value

EV = Market Capitalization + Market Value of Debt – Cash and Equivalents

EV = Market Cap + Net Debt

So stock price + debt - cash.

Time Periods:

Current or Trailing

When referring to the current or trailing key ratio it means in the past 12 months.

Often more used.

Forward

The projected is 12 months.

Forward-ratio is riskier. Since they rely on forecasts and no one can always estimate the future.

Valuation Key Ratos

P/E

Current Stock Price (P) / Earnings Per Share (EPS)

Example:

If a company’s stock is trading for $100 and it had a EPS of $10. The P/E is calculated by $100/$10 = 10.

There are two types of P/E.

Trailing P/E = The past 12 months' EPS.

Forward P/E = 12 months projected EPS.

Trailing P/E is more used.

When to use P/E?

When to company has a profit.

When to not use P/E?

When a company has no earnings.
When the earnings come from an appraised valuation. Such as real estate
Whenever the earnings are not valued.

P/(E)x

Price / Average EPS for x years.

Example:

The Company stock is trading for $100 and the Average EPS for 3 years is $10.

P/E = $100 / $10 = 10. The P/E is $10

When to use P/(E)x

When the company has earnings.

When to not use P/(E)x

When there are no earnings.
When a company has no earnings for all x years.

P/S

Price / Sales

Example:

The Company stock is trading for $100 and the sales are $10. The P/S = $100 / $10 = 10.

⇩ Lower P/S = Better

When it’s good to use:

When a company has any Sales
When a company has no earnings yet.
When a company has high-profit margins.

When it’s bad use P/S:

When a company has no sales.

Dangers of using P/S:

A company can increase its sales by increasing its prices. And while the P/S may look attractive it can be long-term bad. Since they invite more competition when increasing the prices.

P/B

Price / Book value

Example:

The company is trading for $100 and has a total book value per share of $50. P/B = $100 / $50 = 2. The P/B = 2.

This means for every $1 of book value in the company you pay $2.

Pros:

When there’s a book value

Cons:

When there’s a lot of intangible book value, like goodwill. Since they are easier to “guess” in the balance sheet
When the book value items are hard to sell. For example, a 1 billion rocket won't have many possible buyers.
When the book value can break down. If a rocket is too old you may need to scrap it instead of selling it.

P/B-Tang

Price / Tangible book value.

Example.

If a companies stock is trading at $100 and it’s tangiable book value is $40. P/B = $100 / $40 = 2.5.

For every $2.5 you buy a company you get $1 worth of tangible book value.

Pros:

When there is tangible book value
When there's a lot of intangible book value
Good to compare to vs P/B.

Cons:

It ignores intangible book value. And some companies have the majority of valuation in intangible assets.
Some tangible assets may be hard to sell or even need to be scrapped.
The intangible book value is incorrectly calculated.

P/EBIT

Price / Earnings Before Interest and Taxes (EBIT)

Taxes vary in countries and accountant skills. Interests vary in past financial terms.

Since Interests and Taxes are not linked to the company's performance it can make sense to exclude them.

To better understand how the company is performing on its Operating Income (also known as EBIT)

Pros:

If there are any earnings.
Good to compare to P/E

Cons:

No earnings.
Interests and Taxes are real costs that can take away all the earnings.
A company can look profitable before interest and taxes are taken into account.
The company can have high-interest costs that make the company unprofitable.

P/EBITDA

Price / Earnings Before Interest and Tax, Depreciation, and Amortization

When a company buys something they can write it as a Depreciation cost over x amount of years. Instead of the actual number for that given year.

So even if the actual earnings are way lower. It gets written down as a smaller cost over a longer period due to Depreciation.

Amortization is when a company pays back its loans.

So all these expenses have nothing to do with how the company is run.

Pros:

Good to value after P/E
Good to value Bonds. Since interest is paid before taxes.
Good to see a company's ability to pay off its debt.

Cons:

Companies can look better than they are. Since they take out such a big part of their expenses.

P/FCF

Free Cash Flow

Cash flow is when you receive cash. The cash left over after all payments towards the operation and maintenance.

EV/E

EV/S

EV/EBIT

EV/EBITDA

EV/OCF

Operative Cash Flow (OCF) is the cash generated by a company's business operations.

EV/FCF

Growth

Earnings Growth

Earnings / Last Years Earnings

If a company has earned $100 and Last Year earned $90. This means the Earnings Growth is $100/$90 = 1,11 = 11%. The company has an Earnings Growth of 11%.

PEG

P/E / Earnings Growth

Dividend Growth

Dividend / Last Years Dividend

Revenue Growth

Revenue / Last Year's Revenue

FCF Growth

FCF (Free Cash Flow) / Last Years FCF

EBIT Growth

EBITDA Growth

Book Value Growth

Cash

The sum of cash and cash equivalent

Net Debt Growth

Liabilities Growth

Assets Growth

Numbers of Shares

Profitability

Profit Margin

Earnings / Sales

Operating Margin (or EBIT Margin)

EBIT / Sales

Gross Margin

Gross Income / Sales

EBITDA Margin

EBITDA / Sales

FCF Margin

FCF / Sales

OCF Margin

Operative Cash Flow / Sales

Return on Equity ROE

Earnings / Total Equity

Return on Assets ROA

Earnings / Total Assets

Return on Tangiable Assets

Earnings / Assets - Intangible Assets

Return on Invested Capital ROIC

Earnings / Invested Capital

Invested Capital = Working Capital + Non-current Assets - Cash

Return of Capital ROC

EBIT / Invested Capital

Asset Turnover

Sales / Total Assets

Financial Strenght

Equity Ratio

Equity / Total Assets

Debt to Equity

Total Liabilities / Equity

Current Ratio

Current Assets / Current Liabilities

Net Debt

Net Debt / Total Assets

Net Debt / EBITDA

Working Capital / Non-Current Liabilities

Working Capital %

Working Capital / Total Assets

Intangible Assets %

Intangible Assets / Total Assets

Cash %

Cash / Total Assets

Capex %

Capex / Operating Cash Flow

Dividend / Free Cash Flow

Earnings / FCF

Income Statement

Revenue

Total Sales

Gross Profit

Profit after all expenses tied to doing business.

Operating Income (EBIT)

Earnings

Profit Before Tax

EBITDA

EBIT + Depreciation & Amortization

Balance Sheet

Intangible Assets

Patents, goodwill, licenses.

Tangible Assets

Buildings, machinery

Non-Current Assets

Long-term Assets. Intangible, tangible, and financial assets.

Current Assets

Inventories account receivable, cash and cash equivalents

Cash

Cash, cash equivalents, and short-term investments in current assets

Total Assets

Total Equity

Total Assets - Total Liabilities

Non-current Liabilities

Liabilities with a longer repayment period.

Current Liabilities

Liabilities with a shorter repayment period.

Total Liabilities

The sum of Current and Non-current liabilities. Equal to total assets minus equity.

Net Debt

Interest-bearing liabilities minus cash and short-term investments

Balance Sheet Total

The sum of total liabilities and equity.

Cash Flow

Operating Cash Flow

Cash flow from operating activities before investing and financial activities.

Capex

Total investing activities on cash flow statement

Cash Flow From Financing

Cash Flow For The Year

Free Cash Flow

Cash Flow after investment activities. Cash flow from operating activities minus Capex

Number of Shares

The Sum of current and non-current liabilities. Equal to total assets minus equity