A company’s financial figures are evaluated in relation to its share price. By incorporating the stock market value of a company's shares, these ratios enable meaningful comparisons across publicly listed companies.
We distinguish between the following ratios:
- Performance ratios
Performance ratios are used to assess a company’s financial success and overall business performance.
- Liquidity ratios
Liquidity ratios measure a company’s ability to meet its short-term financial obligations at a specific point in time. They indicate whether a business has sufficient liquid resources or may face potential payment difficulties.
Example: current ratio (liquidity ratio III)
- Profitability ratios
Profitability ratios evaluate a company’s ability to generate returns. They are typically expressed as a percentage.
Example: return on equity (ROE)
- Balance sheet ratios
Balance sheet ratios are widely used by both companies and external stakeholders, including investors and creditors, to assess financial stability and capital structure.
Example: debt ratio
Author
Günther Kornfellner, CFA, CAIA
Derivate Trader, Bybit EU