Here are some key business ratios that can help to evaluate the health of a company.
Current Ratio This ratio is the current assets divided by the current liabilities. It gives an indication of whether a company is likely able to pay its debts.
Quick Ratio When you total a companies cash, marketable securities and its accounts receivable and divide the total by its current liabilities you get the current ratio. This is another measure of how well a company can pay its debts. If this ratio is at least 1 the company is in good shape. Even higher is better
Debt To Equity Debt is a 2 edged sword. When business is booming, debt makes a company grow faster. That is called leverage. When business is bad, big chunks to the company's capital can go to paying debt. The dept to equity ratio gives a measure of where that a company is at in that leverage to risk spectrum.
Sales To Inventory This one measure how fast inventory is turning over. If this ratio is 4, then it means that sales equals the amount invested in inventory times 4.
Profit Margin Profit margin is the ratio of the profit received for a product divided by the revenue from that product expressed as a percentage. A company has less risk if its profit margin is high.
