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Ratio Analysis (key ratios)

Numbers tell stories through ratios.

1. Liquidity Ratios (Can company pay bills?)

Current Ratio = Current Assets / Current Liabilities

  • Good: > 1.5
  • Bad: Less than 1

Example: Assets ₹10L, Liabilities ₹6L Current Ratio = 10/6 = 1.67 ✅ Good!

2. Profitability Ratios

Gross Margin = (Gross Profit/Sales) × 100 Net Margin = (Net Profit/Sales) × 100 ROE (Return on Equity) = (Net Profit/Equity) × 100

Example: Net Profit ₹20L, Equity ₹1Cr ROE = 20/100 × 100 = 20% (Excellent!)

3. Debt Ratios

Debt-to-Equity = Total Debt / Equity

  • Good: Less than 1
  • Risky: > 2

4. Efficiency Ratios

Asset Turnover = Sales / Total Assets Higher = Better asset utilization

🎯 Stock Picking

Before buying ANY stock, check these 5:

1. ROE > 15%

2. Current Ratio > 1.5

3. Debt/Equity less than 1

4. Net Margin improving

5. Consistent profits (5 years)

Quiz

Test Your Knowledge

Test Your Knowledge

Question 1 of 1

1. What is the main concept covered in this lesson?

Ratio Analysis (key ratios)
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Key Takeaway: Understanding Ratio Analysis (key ratios) is essential for making informed financial decisions.

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