What are the 5 basic financial ratios?
Fundamental equity analysis and corporate financial health evaluation utilize five primary quantitative ratios to assess liquidity, profitability, and operational efficiency. The first is the current ratio, measuring short-term liquidity by comparing current assets to current liabilities. The second is the debt-to-equity ratio, evaluating financial leverage and long-term solvency. The third is the net profit margin, calculating the percentage of revenue remaining as net income after all expenses. The fourth is return on equity, assessing how effectively management generates profits from shareholder investments. The fifth is inventory turnover, indicating how rapidly a company sells and replaces its stock of goods over a given period.
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