What are the key financial analysis ratios?

Because it is essential to know the strengths and weaknesses of a company in order to compare it to its competitors or determine its value , many financial analysis ratios exist. Be careful, however, to choose the ones that are most relevant.

The ratios relating to the profitability of the company

There are several ratios to evaluate the profitability of the company:

The EBITDA margin is calculated using the following formula: Gross operating surplus (EBITDA) / Revenues . This ratio makes it possible to know the share of the added value between shareholders and employees and is a good tool to compare companies between them

The return on equity , calculated on the basis of the formula Net Profit / Equity , measures the profits generated with the money invested by the shareholders. This ratio is very relevant for comparing the profitability of firms belonging to the same sector of activity

The margin rate calculated using the formula (Turnover excluding VAT - Purchases / Services consumed excluding VAT) / Turnover excluding VAT , allows to know the margin realized by a company.

Ratios for analyzing the financial structure of a company

Several ratios can be calculated to understand the financial structure of a company  :

The Working Capital Requirement (WCR) , calculated using the formula Current assets - Short-term debts , should not be negative because this would mean that financing is needed to ensure continuity of short-term activity

The liquidity ratio ( Short-Term Assets / Current Liabilities) measures the short-term solvency of a company

The debt-to-equity ratio , determined using the Debts / Equity formula, provides information on the financial independence of the company vis-à-vis its creditors.