8 Financial Ratio Analysis Tutorials (Selection of YouTube’s Best)

3-Minute Overview: Financial Ratio Analysis Explained

Download FREE cheat-sheet PDF at the bottom of all videos below

Current Ratio

Current Ratio: (Current Assets)/(Current Liabilities)

  • Tells us how much of  your company’s stuff can be easily changed into cash within the next 12 months so that it can pay debts which need to be paid also within 12 months.
  • A higher ratio (significantly above 1) indicates that the company is “less risky” for creditors, but could also indicate that the company is not efficient at using current assets for more profit.

 

Quick Ratio or Acid Test Ratio

Quick or Acid Test Ratio: (Quick Assets)/( Current Liabilities)

  • Tells us how much assets can be easily and quickly converted to cash to pay for liabilities within the next 12 months.
  • Similar to current ratio, a higher number indicates that the company is “less risky” for creditors, but could also indicate that the company is not efficient at using short term assets for profit.

Cash Ratio

Cash Ratio: (Cash/Current Liabilities)

  • Similar to the current ratio and even more stringent than the Quick Ratio, as we only compare cash with current liabilities instead of all current assets to current liabilities. Why? Because you cannot easily use all of your current assets to pay your debts. 

ROA Ratio Return on Assets

ROA or Return on Assets: (Net Income)/(Total Assets)

  • Higher ROA indicates that the company is more efficient in using assets to generate profit; a lower ROA indicates that the company is less efficient in using assets to generate profit.

ROE Ratio Return on Equity

ROE or Return on Equity: (Net Income)/(Total Equity)

  • A higher ROE indicates that the company is more efficient in giving more profit to the company’s owners compared to these owners’ personal investment in the company. 

Profit Margin Ratio

Profit Margin Ratio: (Net Income)/(Sales)

  • Tells us how much profit your company earns compared to your company’s sales.  Normally, a higher number is better; because you want to earn more profit for every $1 of sales that you get. 

EPS Earnings Per Share

EPS or Earnings Per Share:  (Net Income)/(# Shares Outstanding)

  • Tells us how much proportion of income the holder of one share of stock is entitled to.  VERY UNRELIABLE ratio because even companies of same size or profitability may have different number of outstanding shares.

P/E Ratio or Price Earnings Ratio

P/E or Price Earnings Ratio: (Share’s Market Price)/(Earnings Per Share)

  • A low Price Earnings Ratio can be good because it means the market price is low compared to how much profit the company is making; but can also be bad because “why is it selling cheap?” Maybe they’re expecting bad news in the future.

7 Turnover Ratios – Premium Video (Free Preview)

5 Financial Leverage Ratios – Premium Video (Free Preview)

To Watch FULL Premium videos Click Here

Download FREE cheat-sheet PDF on Financial Ratio Analysis click here

Overview:

  • It’s not enough to simply say a company is in “good or bad” health…

 

  • We put numbers on this “health,” so that we can compare these “health numbers” with the numbers of other companies…

 

  • One form of “health numbers” are “ratios” which is basically different numbers combined into just one number to make it “simpler.”

 

  • For example, if a company has current assets of $1,000 (one number) and current liabilities of $800 (another number), these two numbers can be combined $1,000/$800 into just one number of 1.25 (1000/800=1.25) which in this example is the “current ratio.”

 

  • Of course, because of this “1-number simplicity,” it doesn’t tell the ‘whole story’ and they are not completely reliable.  There are many flaws  and many different ways of understanding individual financial ratios, which I cover deeply in the FREE videos above. (I suggest you watch them.)

 

  • Liquidity Ratios can tell us how easily a company can pay its debts… so that the company doesn’t get eaten up by banks or other creditors. An example is the Current Ratio (as above).

 

  • Profitability Ratios can tell us how good a company is at making money. An example of this is the Profit Margin Ratio.

 

  • Leverage ratios tell us how much debt the company is using to make the company run and stay alive. An example of this is the simple Debt Ratio.

CLICK  HERE  for:

Financial Ratio Analysis – 7  Turnover Ratios in 19 min.
Financial Ratio Analysis – 5 Financial Leverage Ratios in 24 min.

60 Comments

  • sally

    Reply Reply 21 September 2011

    thank u 😀

  • Anupam Kumari

    Reply Reply 20 November 2011

    Thank you so much for the beautiful explanation.

  • dilnawaz

    Reply Reply 22 December 2011

    i wish i would learn all my mba subjests from u more deeply u r so much sencere to ur viewers man hands off to u SIR

    • David

      Reply Reply 24 December 2011

      I wish I could provide more but it actually takes a while to make new ones, even if it looks simple (or rather, especially because it’s very hard to think of how to make it look simple). Good luck to you dilnawaz!

  • sujatha

    Reply Reply 10 February 2012

    thank you so much 4 nice explanaion.

  • Tahir Bashir

    Reply Reply 27 May 2012

    Man simply Ur are great help to us 🙂 perfectly explained Thank you a lot.

  • Joseph Abraham

    Reply Reply 8 August 2012

    Hi Dave,

    I like your videos, but for a certain reason I was not able to top up my Pay pal
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    Regards
    Joe

    • David

      Reply Reply 11 August 2012

      Hey Joe, unfortunately that’s a Paypal issue, and you’ll have to try fix it with them. I completely understand the difficulty working with a large (although highly reputed) company with millions of clients. Your account may have been flagged for one reason or another.

  • Ashutosh

    Reply Reply 10 November 2012

    Good good

  • Paul

    Reply Reply 13 December 2012

    Thank you! Best explanations ever!

  • Hannah

    Reply Reply 24 February 2013

    Thx very much! Great videos.

    • David

      Reply Reply 25 February 2013

      Welcome Hannah,hope all is great with you!

  • olubunmi oladele-ajose

    Reply Reply 4 April 2013

    Thank you.

  • olubunmi oladele-ajose

    Reply Reply 4 April 2013

    This is awesome
    Thanks

  • dawood

    Reply Reply 20 May 2013

    thanks alot

    • David

      Reply Reply 24 May 2013

      @dawood You’re welcome a lot too!

  • mohan

    Reply Reply 3 August 2013

    you’re videos are simple and great. It help persons like me who are don’t know what is finance in their lifetime. thank you sir

    • David

      Reply Reply 8 August 2013

      @mohan welcome and I hope it helps you in your lifetime

  • Ali

    Reply Reply 9 August 2013

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    • David

      Reply Reply 13 August 2013

      @Ali I do have a happy life indeed, thanks for your wishes

  • Banzi

    Reply Reply 12 October 2013

    I passed my MBA fin exams with flying colors thanx David

    • David

      Reply Reply 16 October 2013

      @Banzi WOW!!! So glad to hear that. Best of luck in your career!

  • Micky

    Reply Reply 23 October 2013

    I thank you for this videos, wish i have seen them at the beginning of the semester. luckily it will help me in my preparation for the exam.

    • David

      Reply Reply 28 October 2013

      @Micky it’s not too late, man; good luck in your exam!

  • Miltina

    Reply Reply 17 November 2013

    Thanks David for these videos it has helped me so much and am so lucky i have viewed them before my exams which is two weeks away. It is up now up to me apply what I’ve learnt.
    Once again thanks!

    • David

      Reply Reply 18 November 2013

      @Miltina best of luck in your exam, let us know how it goes!

  • kehkashan

    Reply Reply 1 December 2013

    hi
    these video are very helpful for me but i cant understand of pbp and irr its very difficult

    but thank you very much for sharing

    kind regards

  • Harsha

    Reply Reply 5 March 2014

    Thanks Mr.David.
    your videos are very helpful to understand the concepts easily. Simply superb:-)

    • David

      Reply Reply 5 March 2014

      @Harsha: Glad you find it “superb” !!

  • carmela marie descaller

    Reply Reply 20 October 2014

    nice explanation.. thank you sir….

    • David

      Reply Reply 21 October 2014

      @carmela you’re welcome!

  • Maria

    Reply Reply 27 October 2014

    Its really a big help! Thanks much sir.
    This might not be the whole explanation of each every topic but this means a lot for us to easily understand the finance subj!

    • David

      Reply Reply 30 October 2014

      @Maria you’re very welcome

  • @nkit

    Reply Reply 1 March 2015

    Hi David, I spent an year in bschool and didnt get anything in fin. nd u made me understand in few mintutes. wish u were there in my mba.

    • David

      Reply Reply 7 March 2015

      @nkit glad you found us! Wish you the best in your career!

  • SIMON OSEI

    Reply Reply 16 July 2015

    ooooooooo I REALLY LOVE IT AND IN FACT ITS VERY SIMPLE AND EASY TO UNDERSTAND

    • David

      Reply Reply 20 July 2015

      @Simon glad you find it simple!

  • TamaraA

    Reply Reply 11 October 2015

    Thank you.
    My nightmare subject. Studying via distance and your videos are great.
    I think I get this now. It’s a foreign language to me thanks for translating.

    Will share on our forums.

    • David

      Reply Reply 11 October 2015

      @TamaraA glad to have helped you with your nightmare! Thanks for sharing on your forums..

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    Reply Reply 6 January 2016

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    • David

      Reply Reply 20 January 2016

      @abrar thank you too, boss!

  • Shehzad Parvi

    Reply Reply 23 February 2016

    hey dude you are beyond awesome

    • David

      Reply Reply 28 February 2016

      @Shehzad hey dude thanks!

  • Anubind Tiwari

    Reply Reply 14 September 2016

    you are just great, this helped me a lot during my MBA, and now I use it as a refresher.

    • David

      Reply Reply 23 September 2016

      @anubind great to hear that!

  • Raju

    Reply Reply 12 January 2017

    I am persuing CMA Final and I watched you free demo vedio….Excellent sir i don’t have word to how to say thanks…I don’t have money right now to buy this e-book but I will defiownitely buy in future by whatever price….excellent Sir…good job..

    Thanks
    Raju Jha

    • David

      Reply Reply 12 January 2017

      @Raju: While we do have ebooks for sale, the “Cheat Sheet” ebook on this page is FREE, just look for the link above and you can download it. Cheers.

  • mohamed hussein

    Reply Reply 18 January 2017

    realy its very good explanation…

    • David

      Reply Reply 18 January 2017

      @mohamed glad you like the explanation!

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    Reply Reply 24 January 2017

    Honestly this site has made my students feel happy and they love me most

    • David

      Reply Reply 31 March 2017

      @Simon glad to have helped make your students happy!

  • Anass Khaled

    Reply Reply 7 February 2017

    i do not find fit words to appreciate you but at least thanks so much

  • Brian

    Reply Reply 20 March 2017

    Just wanted to say that your website has been a huge help in my studies. I’m currently a BBA student with a concentration in finance.Your content has cleared up many topics for me that were not appropriately explained by my coursework. Thanks so much.

    • David

      Reply Reply 31 March 2017

      @Brian so happy to have been of help!

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