Financial Ratios
Every important ratio for analysing a stock — explained in plain English with its formula, an interactive calculator, healthy ranges for Indian companies, and the mistakes to avoid. The foundation for reading any balance sheet or valuation.
Valuation
P/E Ratio
How much you pay for every ₹1 of a company’s annual earnings.
P/E = Share Price ÷ Earnings Per Share (EPS)
P/B Ratio
How the market price compares to the company’s net asset (book) value.
P/B = Share Price ÷ Book Value Per Share
PEG Ratio
A P/E ratio adjusted for the company’s earnings growth rate.
PEG = P/E Ratio ÷ Annual Earnings Growth Rate (%)
Earnings Yield
The inverse of P/E — a company’s earnings as a percentage of its price.
Earnings Yield = EPS ÷ Share Price × 100
Profitability
Return on Equity (ROE)
How much profit a company generates on shareholders’ capital.
ROE = Net Profit ÷ Shareholders’ Equity × 100
Return on Capital Employed (ROCE)
How efficiently a company generates profit from all its capital — equity and debt.
ROCE = EBIT ÷ Capital Employed × 100
Operating Margin
The percentage of revenue left as operating profit after running costs.
Operating Margin = Operating Profit (EBIT) ÷ Revenue × 100
Net Profit Margin
The percentage of revenue that becomes bottom-line profit.
Net Margin = Net Profit ÷ Revenue × 100
Leverage
Liquidity
Current Ratio
Whether a company has enough short-term assets to cover its short-term liabilities.
Current Ratio = Current Assets ÷ Current Liabilities
Quick Ratio (Acid Test)
A stricter liquidity test that excludes inventory from current assets.
Quick Ratio = (Current Assets − Inventory) ÷ Current Liabilities
Per-share
Dividend Yield
The annual dividend income you earn as a percentage of the share price.
Dividend Yield = Annual Dividend Per Share ÷ Share Price × 100
Earnings Per Share (EPS)
The portion of a company’s profit allocated to each share.
EPS = Net Profit ÷ Number of Shares Outstanding
Book Value Per Share
The net asset value of the company attributable to each share.
Book Value Per Share = Shareholders’ Equity ÷ Shares Outstanding