FELEX ORIAMA
Financial Ratios & Analysis – Complete Study Guide
(2025 Edition)
With Formulas, Worked Examples & Interpretation Rules
04 09 2025
, Table of Contents
Introduction...........................................................................................................................................2
Important Financial Ratios:................................................................................................................2
Limitations:.......................................................................................................................................2
1. 1. Liquidity Ratios...............................................................................................................................3
a) The Current Ratio:..........................................................................................................................3
b) The Quick Ratio (Acid-Test Ratio)..................................................................................................3
c) Cash Ratio......................................................................................................................................3
2. 2. 2. Profitability Ratios......................................................................................................................3
a) Gross Profit Margin (GPM).............................................................................................................3
b) Net Profit Margin (NPM)................................................................................................................3
c) Return on Assets (ROA)..................................................................................................................3
d) Return on Equity (ROE)..................................................................................................................3
d) Earnings per Share (EPS)................................................................................................................3
3. 3. Ratios for solvency (leverage ratios)..............................................................................................4
a) The Debt-to-Equity Ratio (D/E)......................................................................................................4
b) Ratio of Debt..................................................................................................................................4
c) The amount of interest that can be paid........................................................................................4
4. Ratios for activities (efficiency ratios)................................................................................................4
a) The Inventory Turnover Ratio........................................................................................................4
b) The number of sales compared to the number of receivables......................................................4
c) The ratio of payables to sales.........................................................................................................4
d) The Ratio of Asset Turnover..........................................................................................................4
Summary Table—A Quick Reference.............................................................................................5
Questions to Practice.....................................................................................................................5
Conclusion.....................................................................................................................................5
References.....................................................................................................................................7
1|Page
Financial Ratios & Analysis – Complete Study Guide
(2025 Edition)
With Formulas, Worked Examples & Interpretation Rules
04 09 2025
, Table of Contents
Introduction...........................................................................................................................................2
Important Financial Ratios:................................................................................................................2
Limitations:.......................................................................................................................................2
1. 1. Liquidity Ratios...............................................................................................................................3
a) The Current Ratio:..........................................................................................................................3
b) The Quick Ratio (Acid-Test Ratio)..................................................................................................3
c) Cash Ratio......................................................................................................................................3
2. 2. 2. Profitability Ratios......................................................................................................................3
a) Gross Profit Margin (GPM).............................................................................................................3
b) Net Profit Margin (NPM)................................................................................................................3
c) Return on Assets (ROA)..................................................................................................................3
d) Return on Equity (ROE)..................................................................................................................3
d) Earnings per Share (EPS)................................................................................................................3
3. 3. Ratios for solvency (leverage ratios)..............................................................................................4
a) The Debt-to-Equity Ratio (D/E)......................................................................................................4
b) Ratio of Debt..................................................................................................................................4
c) The amount of interest that can be paid........................................................................................4
4. Ratios for activities (efficiency ratios)................................................................................................4
a) The Inventory Turnover Ratio........................................................................................................4
b) The number of sales compared to the number of receivables......................................................4
c) The ratio of payables to sales.........................................................................................................4
d) The Ratio of Asset Turnover..........................................................................................................4
Summary Table—A Quick Reference.............................................................................................5
Questions to Practice.....................................................................................................................5
Conclusion.....................................................................................................................................5
References.....................................................................................................................................7
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