Ratios turn your financial statements into quick health checks.
Liquidity
- Current ratio = current assets ÷ current liabilities. Below 1 means short-term obligations exceed short-term assets.
- Quick ratio = (current assets − inventory) ÷ current liabilities. A stricter test that ignores stock you may not sell quickly.
Profitability
- Gross margin = gross profit ÷ revenue.
- Net margin = net profit ÷ revenue.
- Return on equity = net profit ÷ owners' equity — what the owners earn on what they put in.
Debt
- Debt-to-equity = total liabilities ÷ equity. A rising figure means more of the business is funded by others.
Using them well
- Compare with your own history and with businesses in the same sector — a good ratio in retail can be weak in services.
- Look at the direction of change, not only the level.
- Ask why a ratio moved before deciding what to do.
Example
Current assets of SAR 500,000 and current liabilities of SAR 400,000 give a current ratio of 1.25.
Try it yourself: Financial ratios calculatorOpen the tool
TopicsFinancial ratiosCurrent ratioQuick ratioDebt ratio
