Category Archives: Financial Ratios

Financial Analysis – A “Check-up” for a Business

Just like we all care about our personal health, managers and investors care about the health of their company. How can they perform a “check-up” on their business in order to determine its progress and financial health? Instead of weight or blood pressure, analysts use financial ratios. We’ll talk about three categories of ratios: profitability, liquidity, and solvency.

Price to Sales (P/S Ratio)

This article describes price-to-sales ratios (Price/Sales or P/S), which take the company’s market capitalization (the number of shares multiplied by the share price) and divide it by the company’s total sales over the past 12 months. The lower the ratio, the more attractive the investment.

Price to Earnings Growth (PEG)

Price/Earnings To Growth, is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected future growth. It can be useful when looking at the future earning growth. To find out more details about the PEG, and how it’s calculated, click on this article.

Current Ratio

Current Ratio is the ratio of current assets divided by current liabilities. It provides A liquidity ratio that measures a company’s ability to pay short-term obligations. Also known as “liquidity ratio”, “cash asset ratio” and “cash ratio”. Read this article for the formula and an example of a current ratio in action.

PE Ratio: Compare Relative Values

PE Ratio (Price-to-Earnings) is a valuation ratio that compares the price per share of a company’s stock to its earnings per share. It basically shows how much investors are willing to pay for a share given the earnings currently generated. This article provide the details of how to use and interpret it, as well as gives an example of how it is calculated.