#financial-ratios
Key financial ratios like ROA, ROE, and profitability metrics for measuring business performance
The Piotroski F-Score grades cheap stocks on nine yes-or-no tests of profitability, leverage, and efficiency: 8 or 9 signals strength, 0-2 signals a trap.
Gross margin tests pricing, operating margin tests overhead, net margin tests financing and tax — read the three as a funnel to find where profit leaks.
Burn multiple is net burn divided by net new ARR — under 1.5x marks fundable SaaS efficiency, while above 3x means growth destroys value.
Gross margin tests your pricing, operating margin tests your overhead, net margin tests the bottom line — track all three monthly to find the leak.
Gross margin tests your pricing; net margin tests the whole business — the gap between them shows whether pricing or overhead eats your profit.
Assets minus liabilities equals equity — and three ratios (current, quick, debt-to-equity) tell you in five minutes whether your business is solvent.
A credit-line draw is a liability that raises your debt-to-equity ratio; equity cash lowers it. Weigh deductible interest against permanent dilution.
Divide operating cash flow by annual debt payments: above 1.2 your business comfortably carries its debt, below 1.0 operations alone cannot cover it.
Compare margins, liquidity, efficiency, and leverage together each month — trends and peer benchmarks reveal problems raw statements hide.
Divide operating cash flow by debt principal, capex, and owner draws: above 1.0 the business funds itself, below it the gap comes from borrowing or reserves.
Divide total liabilities by total assets: under 0.5 is healthy, over 0.7 is fragile, and lenders recompute it after adding your loan.
Inventory turnover is COGS divided by average inventory — apparel typically turns 4 to 6 times a year. Track it quarterly to spot dead stock and free cash.
