Getting Started With Financial Ratio Analysis
Financial ratios sound intimidating but they're just ways to compare numbers that tell you something useful. Here's how to start using them without getting overwhelmed.
Pick Three Ratios That Match Your Questions
Don't calculate everything. If you're worried about debt, focus on debt-to-equity. Concerned about profitability? Start with profit margin and return on assets.
Compare Against Something Real
A ratio by itself doesn't mean much. Look at the same ratio from last year, or from a similar company. Context matters more than the number.
Track Changes Over Time
One quarter's data can be misleading. Watch how the ratios move over six months or a year. Trends tell you way more than snapshots.
Ask Why The Numbers Look That Way
The ratio just points to something interesting. You still need to dig into what's causing it. Maybe inventory turnover dropped because of a planned stock increase.
Want More Practical Guidance?
Our workshops walk through these concepts with actual financial statements you can practice on.
See All Workshops