5 Financial Key Ratios - Calculation and Interpretation | maijson GKB.
The Current Ratio assesses liquidity by comparing current assets to liabilities, whereas the Quick Ratio applies a more stringent test that excludes inventories. Return on Equity (ROE) measures profitability from shareholder equity. The Debt-to-Equity Ratio measures financial leverage and risk, while the Gross Profit Margin indicates how effectively a corporation earns profit after production costs. These ratios measure financial health and performance. Profitability Ratios · Gross Profitability Ratio: Formula (Gross Profit / Net Sales) x 100 Example A company with gross profit of $500,000 and sales of $1,000,000 has a gross margin of 50%. · Net profit margin: Formula (Net Profit / Net Sales) x 100 Example If a business generates a net profit of $200,000 on revenues of $800,000, the net profit margin would be 25%. Liquidity Ratio · ...