Financial ratio analysis is the standard language of financial communication. When evaluated across multiple years, ratios expose underlying trends in working capital strain, margin compression, or balance sheet deleveraging that raw statement numbers may conceal.
Liquidity Ratios
Current Ratio
Target: 1.33x – 2.00xMeasures short-term debt-paying capability. A ratio above 1.33x is generally required by commercial lenders.
Quick Ratio (Acid-Test)
Target: 1.00x – 1.25xMeasures immediate cash liquidity without relying on the sale of physical inventory.
Solvency & Leverage Ratios
Debt-to-Equity Ratio
Target: < 1.00x (Conservative), < 2.00x (Moderate)Assesses financial leverage and long-term risk. Lower ratios signify lower financial distress risk.
Interest Coverage Ratio
Target: > 3.00xEvaluates the company’s operating margin of safety in meeting ongoing debt service obligations.
Profitability & Return Ratios
EBITDA Margin (%)
Target: 15% – 25% (Industry dependent)Core operational cash profitability before capital structure, depreciation, and tax distortions.
Return on Equity (ROE %)
Target: > 15.0%Measures the rate of return generated on total capital invested by shareholders.
Return on Capital Employed (ROCE %)
Target: > 15.0%Measures overall business efficiency across both equity and long-term borrowed capital.
Operating Efficiency & Turnover Ratios
Receivables Turnover & DSO
Target: 4.0x – 8.0x (45 – 90 days)Quantifies how efficiently customer invoices are collected into cash.
Inventory Turnover
Target: 4.0x – 6.0x (60 – 90 days)Measures stock velocity and helps detect obsolescence or overstocking.
Working Capital Turnover
Target: 4.0x – 8.0xAssesses how effectively net short-term operating assets support top-line revenue volume.
Compute all 13 ratios automatically
ChatGraphs computes and plots 5-year trends for all of these ratios instantly from any uploaded financial statement.
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