Financial Ratios Cheat Sheet
24 ratios
Formula + healthy range + one-line read
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Every ratio you need to read a company's health, organized by the question it answers. Save it, print it, keep it next to your research.
1. Profitability — "Does this business make money on what it sells?"
From the income statement. High margins mean pricing power; thin margins mean the business lives on volume.
| Ratio | Formula | Healthy range | What it tells you |
|---|
| Gross margin | (Revenue − COGS) ÷ Revenue | Varies widely* | Pricing power & production efficiency |
| Operating margin | Operating income ÷ Revenue | > 10–15% | Core business profitability before financing |
| Net margin | Net income ÷ Revenue | > 8–10% | Bottom line after everything |
| EBITDA margin | EBITDA ÷ Revenue | > 15–20% | Cash operating profit, ignores D&A choices |
| SG&A ratio | SG&A ÷ Revenue | < 20–30% | Overhead discipline (lower = leaner) |
| R&D intensity | R&D ÷ Revenue | 5–15% (tech) | Investment in future products |
* Margins are industry-defined: software 70%+ gross margin is normal, grocery 26%. Never judge without the industry benchmark.
2. Returns — "How well does it use the money invested in it?"
The quality ratios. A company can have great margins and still be a poor use of capital.
| Ratio | Formula | Healthy range | What it tells you |
|---|
| ROE | Net income ÷ Shareholders' equity | > 15% | Return on owners' capital |
| ROA | Net income ÷ Total assets | > 5% | Return on everything the company owns |
| ROIC | NOPAT ÷ Invested capital | > WACC (~8–10%) | Value creation above the cost of capital |
| DuPont check | Net margin × Asset turnover × Leverage | — | Decompose ROE: is it margin, speed, or debt? |
3. Liquidity — "Can it pay its bills this year?"
From the balance sheet. Short-term survival, especially for cyclical or fast-burning businesses.
| Ratio | Formula | Healthy range | What it tells you |
|---|
| Current ratio | Current assets ÷ Current liabilities | 1.2 – 2.0 | Can cover near-term obligations |
| Quick ratio | (Current assets − Inventory) ÷ Current liabilities | > 1.0 | Same, without betting on selling inventory |
| Cash ratio | Cash ÷ Current liabilities | > 0.2–0.5 | Hardest test: cash only |
| Working capital | Current assets − Current liabilities | > 0 | Absolute short-term cushion |
| Cash conversion cycle | DSO + DIO − DPO | Lower = better | Days cash is tied up in operations |
4. Leverage & Coverage — "How dangerous is the debt?"
Debt amplifies everything. These ratios tell you whether leverage is fuel or a fuse.
| Ratio | Formula | Healthy range | What it tells you |
|---|
| Debt-to-equity | Total debt ÷ Shareholders' equity | < 1.0 (most) | Borrowed money vs. owners' money |
| Net debt / EBITDA | (Total debt − Cash) ÷ EBITDA | < 3.0× | Years of earnings to clear the debt |
| Interest coverage | Operating income ÷ Interest expense | > 5× | Can comfortably pay the interest |
| Equity ratio | Equity ÷ Total assets | > 0.4–0.5 | How much of the company is unencumbered |
5. Valuation — "Is the price fair?"
All the health above means little at the wrong price. These connect price to fundamentals.
| Ratio | Formula | Healthy range | What it tells you |
|---|
| P/E | Price ÷ EPS (or Market cap ÷ Net income) | vs. industry* | Years of earnings you're paying for |
| P/B | Price ÷ Book value per share | < 1.5–3× | Price vs. accounting net worth |
| P/S | Market cap ÷ Revenue | < 1–3× (non-tech) | Useful when profits are absent |
| EV/EBITDA | Enterprise value ÷ EBITDA | vs. industry* | Debt-neutral profit multiple |
| PEG | P/E ÷ Earnings growth rate | < 1.0–1.5 | Is growth already priced in? |
| Dividend yield | Annual dividends ÷ Price | 2–5% | Cash return; too high can signal trouble |
* Valuation multiples only mean something against the industry — or turn them into a number with the stock valuation calculator.
How to use this sheet (2-minute version)
Screening a stock? Run the five core ratios — gross margin, operating margin, ROE, current ratio, debt-to-equity — and place each one against the company's industry. Anything outside the normal range is either a red flag or your edge; the benchmarks page tells you which.
Comparing two stocks? Same industry, same ratios, side by side — plus trend over 3 years. The steadier, improving company usually deserves the higher multiple.
Ready to value it? Feed EPS and the industry P/E into the valuation calculator and check the result against the current price.
Frequently asked questions
What are the 5 most important financial ratios?
Gross margin (pricing power), operating margin (core profitability), ROE (capital efficiency), current ratio (short-term safety), debt-to-equity (leverage risk). That combination fits on a napkin and catches most disasters.
What is a healthy debt-to-equity ratio?
Under 1.0 for most industries. Utilities and telecom run 1.0–2.0 by design because their cash flows are stable; software is usually under 0.5. Industry context beats universal rules.
Is this cheat sheet really free?
Yes — print it to PDF with the button above, no email or sign-up needed.
Not investment advice. Healthy ranges are general guidelines and vary by industry, size and business model. Use alongside the industry benchmarks and official filings.