Enter the revenue value in your selected currency.
Enter the net profit value in your selected currency.
Enter the total assets value in your selected currency.
Enter the total liabilities value in your selected currency.
Enter the total equity value in your selected currency.
Enter the share price value in your selected currency.
Enter the dividends value in your selected currency.
History:

Explanation

What is Ratio Analysis?

Ratio analysis is a quantitative method used to evaluate the financial performance of a company by comparing various financial metrics. It helps stakeholders, including investors, management, and analysts, to understand the company’s profitability, efficiency, liquidity, and solvency.

Key Ratios Calculated

  1. Profit Margin: This ratio indicates how much profit a company makes for every dollar of revenue. It is calculated as: §§ \text{Profit Margin} = \frac{\text{Net Profit}}{\text{Revenue}} \times 100 §§ where:

    • § \text{Net Profit} § — the profit after all expenses have been deducted from revenue.
    • § \text{Revenue} § — the total income generated from sales.

    Example: If a company has a net profit of $20,000 and revenue of $100,000, the profit margin would be: §§ \text{Profit Margin} = \frac{20000}{100000} \times 100 = 20% §§

  2. Return on Assets (ROA): This ratio measures how efficiently a company uses its assets to generate profit. It is calculated as: §§ \text{Return on Assets} = \frac{\text{Net Profit}}{\text{Total Assets}} \times 100 §§ where:

    • § \text{Total Assets} § — the total resources owned by the company.

    Example: If a company has a net profit of $20,000 and total assets of $500,000, the ROA would be: §§ \text{Return on Assets} = \frac{20000}{500000} \times 100 = 4% §§

  3. Return on Equity (ROE): This ratio indicates how well a company uses shareholders’ equity to generate profit. It is calculated as: §§ \text{Return on Equity} = \frac{\text{Net Profit}}{\text{Total Equity}} \times 100 §§ where:

    • § \text{Total Equity} § — the net assets owned by shareholders.

    Example: If a company has a net profit of $20,000 and total equity of $200,000, the ROE would be: §§ \text{Return on Equity} = \frac{20000}{200000} \times 100 = 10% §§

  4. Debt to Equity Ratio: This ratio measures a company’s financial leverage by comparing its total liabilities to its shareholders’ equity. It is calculated as: §§ \text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Equity}} §§

    Example: If a company has total liabilities of $300,000 and total equity of $200,000, the debt to equity ratio would be: §§ \text{Debt to Equity Ratio} = \frac{300000}{200000} = 1.5 §§

  5. Dividend Yield: This ratio indicates how much a company pays out in dividends each year relative to its share price. It is calculated as: §§ \text{Dividend Yield} = \frac{\text{Dividends}}{\text{Share Price}} \times 100 §§

    Example: If a company pays $5 in dividends per share and the share price is $50, the dividend yield would be: §§ \text{Dividend Yield} = \frac{5}{50} \times 100 = 10% §§

When to Use the Ratio Analysis Calculator?

  1. Investment Decisions: Investors can use this calculator to evaluate the financial health of a company before making investment decisions.

    • Example: Assessing whether to buy, hold, or sell shares based on profitability and efficiency ratios.

  2. Financial Planning: Business owners can analyze their company’s performance over time to make informed financial decisions.

    • Example: Identifying areas for cost reduction or investment.

  3. Comparative Analysis: Compare financial ratios of different companies within the same industry to gauge relative performance.

    • Example: Benchmarking against competitors to identify strengths and weaknesses.

  4. Credit Assessment: Lenders can use these ratios to assess the creditworthiness of a business before granting loans.

    • Example: Evaluating the debt to equity ratio to determine financial stability.

  5. Performance Monitoring: Regularly track these ratios to monitor the company’s financial performance and make necessary adjustments.

    • Example: Reviewing quarterly results to ensure targets are being met.

Practical Examples

  • Corporate Finance: A financial analyst might use this calculator to evaluate a company’s performance before presenting findings to stakeholders.
  • Startups: Entrepreneurs can use the calculator to understand their financial position and attract potential investors.
  • Academic Research: Students studying finance can apply this calculator to real-world companies for projects or case studies.

Use the calculator above to input different values and see the calculated ratios dynamically. The results will help you make informed decisions based on the financial data you have.