Financial ratios are a way to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency and debt load of your business.
Leverage ratios provide an indication of your company’s long‑term solvency and to what extent you are using long-term debt to support your business.
Shows the percentage of a company’s assets financed by creditors.
Measures how much debt a business is carrying as compared to the amount invested by its owners.
Liquidity ratios measure the amount of liquidity (cash and easily converted assets) that you have to cover your debts and provide a broad overview of your financial health.
(also called cash ratio or acid test ratio)
Indicates a company’s ability to meet immediate creditor demands, using its most liquid assets (cash or assets that are easily converted into cash), also called quick assets.
(also called working capital ratio)
Indicates whether a business has sufficient cash flow to meet its short‑term obligations, take advantage of opportunities and attract favourable credit terms.
Profitability ratios are used not only to evaluate the financial viability of your business, but also to compare your business to others in your industry.
Net profit margin
(also called return on sales)
Measures the percentage of sales revenue retained by the company after operating expenses, interest and taxes have been paid.
Return on investment
(also called return on total assets)
Measures how much profit is generated compared to how much a company has invested to generate those profits.
Return on equity
(also known as return on shareholders' equity)
Indicates the amount of after-tax profit generated for each dollar of equity.
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