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Key Financial Ratios

These are some quantitative measurements that can tell you about the growth story and current valuation of the company.

It’s really important to compare these ratios within the industry vs outside the industry.
- For example, a company might be doing good in broader market but within the specific industry it might not be the best choice.
- Let’s say a financial institution or a bank for some time might outperform a consumer goods company in a bull market, but that is not a good comparison as that same bank might not be doing good when compared to it’s peers in the same industry, i.e., banking firms.
Some ratios might be more important for one industry but not for the other.
- For example, a high inventory turnover ratio might be good for a retail company but might not be as good for other institutions like software or banking
Some ratios might be more important to some stock type than the other.
- For example, a growth stock might have a different set of ratios to look at than a value stock.
- Another example, dividend yield and payout ratio is good to compare within dividend stocks but might not be as good of an indicator in growth stocks
There are hundreds of ratios, you should focus on key ones. (Over analysis might be as bad as under analysis)