Rate Of ReturnAnalysis
When analyzing listed companies, investors often group financial ratios into categories. Here’s a practical framework:
Category | Common Ratios | What They Measure |
Valuation | Price-to-Earnings (P/E), Price-to-Book (P/B), Price-to-Sales (P/S), EV/EBITDA, PEG Ratio | Whether the stock is cheap or expensive |
Profitability | Gross Margin, Operating Margin, Net Profit Margin, Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC) | How efficiently the company generates profits |
Liquidity | Current Ratio, Quick Ratio, Cash Ratio | Ability to meet short-term obligations |
Solvency / Leverage | Debt-to-Equity, Debt-to-Assets, Interest Coverage Ratio, Net Debt/EBITDA | Long-term financial strength and debt burden |
Efficiency / Activity | Asset Turnover, Inventory Turnover, Receivables Turnover, Days Sales Outstanding (DSO), Cash Conversion Cycle | How efficiently assets are used |
Cash Flow | Free Cash Flow Yield, Operating Cash Flow Margin, Cash Flow to Debt | Cash generation quality |
Dividend | Dividend Yield, Dividend Payout Ratio, Dividend Coverage Ratio | Income potential and sustainability |
Growth | Revenue Growth, EPS Growth, Book Value Growth, Free Cash Flow Growth | Business expansion over time |
Market Performance | Earnings Per Share (EPS), Beta, Market Capitalization, Enterprise Value | Market characteristics and stock behavior |
Ratios commonly used by long-term value investors
- P/E
- P/B
- EV/EBITDA
- ROE
- ROIC
- Debt-to-Equity
- Free Cash Flow Yield
- Dividend Yield
- Dividend Payout Ratio
Ratios commonly used for REITs
- Price-to-Book (P/B)
- Distribution Yield
- Distribution Payout Ratio
- Adjusted Funds From Operations (AFFO) Payout Ratio
- Gearing Ratio
- Interest Coverage Ratio
- Net Asset Value (NAV) per unit
- Occupancy Rate
- Weighted Average Lease Expiry (WALE)
Ratios commonly used for banks
- Price-to-Book (P/B)
- Return on Equity (ROE)
- Net Interest Margin (NIM)
- Cost-to-Income Ratio
- Non-Performing Loan (NPL) Ratio
- Common Equity Tier 1 (CET1) Capital Ratio
- Dividend Yield.
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