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.
Bankers will often make financial ratios a part of your loan agreement. For instance, you may have to keep your equity above a certain percentage of your debt, or your current assets above a certain percentage of your current liabilities. However, don’t wait until you are visiting your banker to evaluate your ratios. Ideally, you should review them monthly to keep on top of changing trends in your company.
How to use our financial ratio calculators
Choose a financial ratio from the list below. Enter data in the fields and press the Calculate button, and the ratio calculator will provide a result with a brief explanation.
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.
Debt-to-asset ratio: Shows the percentage of a company’s assets financed by creditors.
- Debt-to-equity ratio: 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.
Quick ratio (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.
- Current ratio (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 equity (also known as return on shareholders' equity): Indicates the amount of after‑tax profit generated for each dollar of equity.
- 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.
Set your business on the right path by identifying the best practices in your industry and then comparing them to your own. Consult our benchmarking tools.