---
name: Ratio Analysis
description: Read a company's health from its numbers.
---
# Ratio Analysis

Ratios normalize financial statements so they're comparable across time and companies. Raw numbers mislead; ratios reveal.

## Families
- **Liquidity.** Current ratio (current assets / current liabilities) — can it pay short-term obligations?
- **Profitability.** Gross, operating, and net margin — how much of each dollar survives?
- **Efficiency.** Inventory turnover, days sales outstanding — how fast does capital cycle?
- **Leverage.** Debt/equity, interest coverage — how much rope is the company carrying?
- **Return.** ROE, ROIC — is the business generating returns above its cost of capital?

## Use
- **Trend over time** matters more than any single value. A ratio drifting the wrong way for 3 quarters is the early warning.
- **Compare to peers**, not absolutes. A 5% net margin is great in groceries, terrible in software.