This is perhaps the first time fundamental analysis made sense to me. Compiling all of the following financial ratios, for a publicly traded company, for the last 4 years (because such data is freely available on Yahoo Finance) or quarters, gives the observer a pretty good view of where the company is going.

More as a reminder to myself than anyone, I’d like to list some useful financial ratios here, and come back to them the next time I perform fundamental valuation of a company.

#### Profitability ratios

**Profit margin** (net profit as percent of revenue)

**return on assets**: net income / average total assets

**price-to-sales ratio**: price per share / annual sales per share

**price-to-book ratio:** rice per Share / Book Value per Share\

**Dividend yield:** Dividend per Share / Price per Share

**Dividend payout ratio**: Dividend / Net Income

**Return on equity:** Net Income / Average Stockholder Equity

#### Liquidity ratios

**current ratio**: current assets / current liabilities

**quick ratio**: (Current Assets – Inventory) / Current Liabilities

**Account Receivables turnover ratio**

Liquidity vs solvency: liquidity is the short-term concept, solvency is long-term. Liquidity means ability to meet short-term cash needs, such as payroll. Solvency means being long-term commercially viable.

#### Solvency ratios

**average collection period**

**inventory turnover ratio**

**average sales period**

**The solvency ratio** (a company’s after-tax net income divided by its total debt obligations)

#### Market valuation ratios

**debt to equity ratio**: I believe, debt / equity

**Interest coverage ratio:** EBIT / Interest Expense

**Earnings per share.** This info is often pre-computed for you, per fiscal quarter

**Market valuation.** Cost per share times shares outstanding. This tells you the type of company: large, mid or small? The company plays by different rules based on its size.