Key Financial Ratios Used in Fundamental Analysis

Financial ratios compress financial-statement information into comparable measurements. They do not replace reading the statements, but they help investors interpret performance, risk, and valuation faster. A ratio is most useful when it is compared across time, against peers, and in the context of the business model.

This section covers four ratio groups that appear often in fundamental analysis. Read them as tools, not as final answers. A ratio can highlight an issue, but it still needs interpretation.

Section Lessons

• Profitability Ratios
• Liquidity Ratios
• Solvency Ratios
• Valuation Ratios

In this section

• Profitability Ratios and What They Reveal About a Business
  Learn how net margin, return on assets, and return on equity help investors judge profit quality and operating efficiency.
• Liquidity Ratios and Short-Term Financial Strength
  Learn how current ratio, quick ratio, and working capital help investors assess a company’s near-term financial flexibility.
• Solvency Ratios and Long-Term Financial Stability
  Learn how debt-to-equity, interest coverage, and capital-structure analysis help investors judge long-term balance-sheet risk.
• Valuation Ratios for Comparing Stock Prices to Fundamentals
  Learn how P/E, P/B, and dividend yield help investors compare price with earnings, assets, and shareholder distributions.