Comprehensive Financial Ratios Guide - Web Cornucopia Finance

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70+ financial ratios with detailed Bad/Fair/Good/Excellent benchmarks
Enhanced startup metrics: Burn Rate, CAC, LTV, MRR, Rule of 40
10 sector analyses: Transportation, Utilities, Energy, Healthcare, Hospitality
Advanced banking ratios: Fee income, Cost of funds, Yield on advances
New cash flow ratios: FCF Yield, Net Debt to EBITDA, Operating Cash Flow
Comprehensive benchmark table with 2024-25 market data

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Comprehensive walkthrough of 70+ financial ratios with practical examples and real-world applications used by professional analysts.

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Financial Ratios Mastery - Complete reference guide (Updated 2024-25)

In-depth coverage of financial ratio analysis with sector-specific benchmarks and practical interpretation techniques for investment decision-making.

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💧 Liquidity Ratios

Current, Quick, Cash ratios

⚖️ Leverage Ratios

Debt, Coverage, Solvency + Cash Flow

💰 Profitability Ratios

Margins, ROA, ROE, EBITDA, FCF

⚡ Efficiency Ratios

Turnover, Activity ratios

📊 Valuation Ratios

P/E, P/B, EV/EBITDA, PEG, Payout

🏦 Banking Ratios

NIM, CASA, NPA, CAR + Enhanced

🚀 Startup Metrics

Burn Rate, CAC, LTV, MRR, Rule of 40

🎯 Sector Analysis

10 sectors with detailed benchmarks

💧 Liquidity Ratios

Assess a company's ability to meet short-term obligations and manage working capital efficiently

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Enhanced Industry Benchmarks (2024-25):

Technology/IT: 2.0-4.0x (Asset-light model)
Pharma/Healthcare: 1.8-3.5x (R&D intensive)
Manufacturing: 1.2-2.0x (Working capital needs)
Banking/NBFC: 1.1-1.2x (Regulatory requirements)
Retail/FMCG: 1.0-1.8x (Inventory cycles)

Quick Ratio (Acid-Test)

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

Enhanced Sector Analysis (2024-25):

IT Services: 1.5+ (Low inventory dependency)
Pharmaceutical: 1.2-2.5x (Research inventory)
Manufacturing: 0.8-1.2x (High inventory component)
FMCG: 0.6-1.0x (Fast inventory turnover)
Banking: N/A (Different liquidity metrics)

Cash Ratio

Cash Ratio = Cash and Cash Equivalents / Current Liabilities

Interpretation:

Conservative: 0.5+ (Very strong cash position)
Good: 0.2 - 0.5 (Adequate cash buffer)
Moderate: 0.1 - 0.2 (Basic cash coverage)
Tight: Below 0.1 (Cash flow dependent)

⚖️ Leverage/Solvency Ratios

Evaluate financial leverage, debt capacity, and long-term financial stability

Debt-to-Equity Ratio

D/E Ratio = Total Debt / Shareholders' Equity

Enhanced 2024-25 Sector Benchmarks:

Technology/IT: 0.0-0.3x (Leading firms like Infosys nearly debt-free)
Pharmaceutical: 0.0-0.5x (Sun Pharma: 0.05x, Cipla: near-zero)
Manufacturing: 0.3-0.8x (Capital equipment financing)
Banking/NBFC: 5.0-15.0x (Deposits as primary funding)
Utilities: 0.8-1.5x (Infrastructure financing)
Real Estate: 1.0-3.0x (Project-based leverage)

Interest Coverage Ratio

Interest Coverage = EBIT / Interest Expenses

Interpretation:

Excellent: 8.0+ (Very safe debt servicing)
Good: 4.0 - 8.0 (Comfortable coverage)
Adequate: 2.0 - 4.0 (Moderate safety)
Risky: Below 2.0 (Potential distress)

Debt-to-Assets Ratio

Debt-to-Assets = Total Debt / Total Assets

Enhanced Asset Leverage Assessment:

Excellent: Below 0.2 (Very low leverage)
Good: 0.2-0.4 (Conservative structure)
Average: 0.4-0.6 (Balanced approach)
Bad: Above 0.6 (High leverage risk)

Net Debt to EBITDA

Net Debt to EBITDA = (Total Debt - Cash) / EBITDA

Leverage Assessment:

Excellent: Below 2× (Very safe leverage)
Good: 2-3× (Manageable debt load)
Average: 3-4× (Moderate leverage)
Bad: Above 4× (High leverage risk)

Operating Cash Flow Ratio

OCF Ratio = Operating Cash Flow / Current Liabilities

Cash Flow Coverage:

Excellent: Above 2.0× (Strong cash generation)
Good: 1.0-2.0× (Adequate coverage)
Average: 0.5-1.0× (Moderate cash flow)
Bad: Below 0.5× (Cash flow concerns)

💰 Profitability Ratios

Measure the company's ability to generate profits from operations and investments

Gross Profit Margin

Gross Margin = Gross Profit / Revenue × 100

Enhanced Sector Analysis (2024-25):

IT Services: 35-50% (TCS, Infosys leadership)
Pharmaceuticals: 50-70% (IP-protected, R&D amortized)
Software Products: 70-90% (Scalable digital products)
Banking: N/A (Interest-based revenue model)
FMCG: 35-55% (Brand premium, scale benefits)
Manufacturing: 15-35% (Material cost intensive)

Return on Assets (ROA)

ROA = Net Income / Total Assets × 100

Benchmarks:

Excellent: 15%+ (Exceptional efficiency)
Good: 8-15% (Strong performance)
Average: 4-8% (Industry standard)
Poor: Below 4% (Inefficient operations)

Return on Equity (ROE)

ROE = Net Income / Shareholders' Equity × 100

2024-25 Sector-Specific ROE Benchmarks:

IT Services: 25-35% (Infosys: 30.7%, HCL Tech: 23.1%)
Pharmaceutical: 15-25% (Asset-light, R&D intensive)
Banking/NBFC: 12-20% (Capital adequacy requirements)
FMCG/Consumer: 18-25% (Brand premium, scale)
Manufacturing: 10-18% (Capital intensive nature)
Utilities: 8-15% (Regulated returns)

Return on Capital Employed (ROCE)

ROCE = EBIT / (Total Assets - Current Liabilities) × 100

Performance Levels:

Excellent: 20%+ (Superior capital efficiency)
Good: 15-20% (Strong capital utilization)
Adequate: 10-15% (Acceptable returns)
Poor: Below 10% (Capital destruction)

Operating Profit Margin

Operating Margin = Operating Income / Revenue × 100

2024-25 Operating Margin Leaders:

IT Services: 20-30% (Digital transformation demand)
Pharmaceuticals: 20-35% (Cipla: 25.6% EBITDA margin)
Banking: 40-50% (HDFC Bank: 42.3% operating margin)
Software: 25-45% (High scalability, low marginal cost)
FMCG: 12-22% (Brand strength, distribution)
Manufacturing: 8-18% (Operational efficiency focus)

Net Profit Margin

Net Margin = Net Income / Revenue × 100

Enhanced Quality Indicators (2024-25):

Excellent: Above 20% (Highly profitable)
Good: 10-20% (Strong profitability)
Average: 5-10% (Industry norm)
Bad: Below 5% (Financial risk indicator)

EBITDA Margin

EBITDA Margin = EBITDA / Revenue × 100

Operational Profitability Assessment:

Excellent: Above 20% (Superior operational efficiency)
Good: 15-20% (Strong operational performance)
Average: 10-15% (Moderate efficiency)
Bad: Below 10% (Operational challenges)

Free Cash Flow Yield

FCF Yield = Free Cash Flow / Market Capitalization × 100

Cash Generation Efficiency:

Excellent: Above 8% (Cash-rich companies)
Good: 5-8% (Strong cash generation)
Average: 3-5% (Moderate cash flow)
Bad: Below 3% (Cash flow concerns)

⚡ Efficiency/Activity Ratios

Analyze how effectively the company utilizes its assets and manages working capital

Asset Turnover Ratio

Asset Turnover = Revenue / Average Total Assets

Industry Expectations:

Retail: 2.0-4.0x (Fast inventory turns)
Manufacturing: 0.8-2.0x (Asset intensive)
Technology: 0.5-1.5x (IP-based assets)
Utilities: 0.2-0.8x (Heavy infrastructure)

Inventory Turnover Ratio

Inventory Turnover = Cost of Goods Sold / Average Inventory

Sector Benchmarks:

Food/Beverage: 12-30x (Perishable goods)
Apparel: 4-8x (Seasonal inventory)
Automotive: 8-15x (Just-in-time)
Heavy Machinery: 2-6x (Long production cycles)

Days Sales Outstanding (DSO)

DSO = Accounts Receivable / (Revenue / 365)

Collection Efficiency:

Excellent: 15-30 days (Fast collection)
Good: 30-45 days (Industry standard)
Acceptable: 45-60 days (Room for improvement)
Poor: 60+ days (Collection issues)

Receivables Turnover

Receivables Turnover = Net Credit Sales / Average Accounts Receivable

Performance Indicators:

Excellent: 12x+ (Monthly collection)
Good: 8-12x (6-7 week cycles)
Average: 6-8x (Quarterly cycles)
Weak: Below 6x (Extended terms)

📊 Valuation Ratios

Assess market valuation relative to financial performance and growth prospects

Price-to-Earnings (P/E) Ratio

P/E Ratio = Market Price per Share / Earnings per Share

Valuation Context:

Growth Stocks: 25-50x (High growth premium)
Quality Stocks: 15-25x (Stable growth)
Value Stocks: 8-15x (Mature businesses)
Deep Value: Below 8x (Potential distress)

Price-to-Book (P/B) Ratio

P/B Ratio = Market Price per Share / Book Value per Share

Asset Valuation:

Premium: 3.0x+ (Strong intangibles)
Fair Value: 1.5-3.0x (Market standard)
Discount: 1.0-1.5x (Asset-rich)
Deep Discount: Below 1.0x (Below book)

EV/EBITDA Ratio

EV/EBITDA = Enterprise Value / EBITDA

Enhanced Valuation Assessment:

Excellent: Significantly below 10× (Attractive valuation)
Good: Below 10× (Reasonable value)
Average: 10-15× (Fair valuation)
Bad: Above 15× (Potentially overvalued)

PEG Ratio (Price/Earnings to Growth)

PEG Ratio = (P/E Ratio) / Earnings Growth Rate

Growth-Adjusted Valuation:

Excellent: Below 0.5 (Undervalued relative to growth)
Good: 0.5-1.0 (Fair value for growth)
Average: 1.0-2.0 (Moderate premium)
Bad: Above 2.0 (Overvalued for growth rate)

Dividend Payout Ratio

Dividend Payout = Dividends Paid / Net Income × 100

Capital Allocation Assessment:

Excellent: 20-30% (Balanced growth & income)
Good: 30-50% (Investor-friendly payout)
Average: 50-80% (High but sustainable)
Bad: Above 80% (Potential sustainability risk)

🏦 Banking & Financial Services Ratios

Specialized ratios for analyzing banks, NBFCs, and financial institutions with unique business models

Net Interest Margin (NIM)

NIM = (Interest Income - Interest Expense) / Average Earning Assets × 100

Enhanced Banking Benchmarks (2024-25):

Top Private Banks: 3.2-4.2% (HDFC Bank: 3.35%)
Mid-tier Private: 3.0-3.8% (Competitive positioning)
Public Sector Banks: 2.5-3.2% (Legacy challenges)
NBFCs: 6-12% (Risk-adjusted pricing)
HFCs: 2.8-4.5% (Housing finance specialists)

CASA Ratio

CASA = (Current + Savings Account Deposits) / Total Deposits × 100

Enhanced CASA Benchmarks (2024-25):

Premier Private Banks: 40-50% (HDFC Bank: 40.8%)
Strong Private Banks: 35-42% (Digital advantage)
Public Sector Banks: 38-45% (Branch network leverage)
Mid-tier Banks: 25-35% (Growth phase)
New Private Banks: 20-30% (Building base)

Gross NPA Ratio

Gross NPA = Gross Non-Performing Assets / Gross Advances × 100

Enhanced NPA Benchmarks (2024-25):

Best-in-Class: Below 1.5% (HDFC Bank: 1.40%)
Strong Quality: 1.5-2.5% (Well-managed portfolio)
Acceptable: 2.5-4.0% (Industry average)
Stressed: 4.0-6.0% (Recovery focus needed)
Distressed: Above 6.0% (Significant cleanup required)

Capital Adequacy Ratio (CAR)

CAR = (Tier 1 + Tier 2 Capital) / Risk-Weighted Assets × 100

Enhanced CAR Benchmarks (2024-25):

Fortress Balance Sheet: 18%+ (HDFC Bank: 19.9%)
Well-Capitalized: 15-18% (Growth flexibility)
Adequate: 12-15% (Basel comfort zone)
Regulatory Minimum: 9-12% (Limited growth capacity)
Stressed: Below 9% (Intervention likely)

Cost-to-Income Ratio

Cost-to-Income = Operating Expenses / Net Income × 100

Enhanced Cost Efficiency (2024-25):

Best-in-Class: Below 42% (HDFC Bank: 42.8%)
Efficient Operations: 42-50% (Digital advantage)
Industry Average: 50-60% (Traditional operations)
Improvement Needed: 60-70% (Legacy systems)
Stressed Operations: Above 70% (Restructuring required)

Credit-Deposit Ratio

Credit-Deposit = Total Loans / Total Deposits × 100

Enhanced Lending Efficiency (2024-25):

Excellent: 80-90% (Optimal lending efficiency)
Good: 75-90% (Balanced approach)
Average: 90-100% (High but manageable)
Bad: Above 100% or Below 60% (Risk/underutilization)

Fee Income to Total Income

Fee Income Ratio = Fee Income / Total Income × 100

Revenue Diversification (2024-25):

Excellent: 40-50% (Strong diversification like HDFC Bank: 43.2%)
Good: 30-40% (Moderate fee income)
Average: 20-30% (Traditional focus)
Bad: Below 20% (Over-reliance on interest income)

Tier 1 Leverage Ratio

Tier 1 Leverage = Tier 1 Capital / Total Exposures × 100

Enhanced Capital Strength (2024-25):

Excellent: Above 15% (HDFC Bank: 17.8%)
Good: 12-15% (Strong capital base)
Average: 8-12% (Regulatory comfort)
Bad: Below 8% (Capital constraints)

Cost of Funds

Cost of Funds = Interest Expense / Average Interest-Bearing Liabilities

Funding Efficiency (2024-25):

Excellent: Below 4.5% (Low-cost funding advantage)
Good: 4.5-5.5% (Competitive funding costs)
Average: 5.5-6.5% (Market rates)
Bad: Above 6.5% (High funding costs)

Yield on Advances

Yield on Advances = Interest Income on Loans / Average Loans

Lending Yield Assessment (2024-25):

Excellent: Above 8.5% (Premium pricing, HDFC Bank: 8.2%)
Good: 7.5-8.5% (Competitive yields)
Average: 6.5-7.5% (Market rates)
Bad: Below 6.5% (Pricing pressure)

🎯 Enhanced Sector-Specific Ratios with Benchmarks

Technology Sector

R&D to Sales: 8-15% (Innovation intensity, Infosys model)
Revenue per Employee: ₹25-40 lakhs (TCS/Infosys benchmark)
Employee Utilization: 75-85% (Billable efficiency)
Offshore Revenue %: 60-80% (Cost arbitrage model)
Recurring Revenue %: 85-95% (Client retention strength)
Churn Rate: Below 5%/year ideal for SaaS

Pharmaceutical Sector

R&D Intensity: 8-15% of sales (Sun Pharma, Cipla leadership)
US Revenue %: 40-60% (Regulatory advantage, Dr. Reddy's)
ANDA Pipeline: 200+ filings (Generic opportunity)
Debt Position: Near-zero optimal (Sun: 0.05x, Cipla: debt-free)
Patent Cliff Impact: <10% revenue risk annually

Transportation Sector

Current Ratio: Good: 1.3-1.7, Excellent: >1.7
Operating Margin: Good: 7-12%, Excellent: >12%
Debt-to-Equity: Good: 0.8-1.5, Excellent: <0.8
Asset Turnover: Good: 1.5-2.0, Excellent: >2.0
Interest Coverage: Good: 4-7×, Excellent: >7×

Utilities Sector

Debt-to-Equity: Good: 0.5-1.0, Average: 1.0-2.0
Operating Margin: Good: 18-28%, Excellent: >28%
Debt Service Coverage: Good: 2.0-3.0×, Excellent: >3.0×
P/E Ratio: Good: 20-25, Excellent: <20
Return on Assets: Good: 2-4%, Excellent: >4%

Energy Sector

Debt-to-Equity: Good: 0.4-0.8, Excellent: <0.4
Debt/EBITDA: Good: 2-3×, Excellent: <2×
Interest Coverage: Good: 7-12×, Excellent: >12×
Return on Equity: Good: 12-20%, Excellent: >20%
Net Profit Margin: Good: 10-20%, Excellent: >20%

Healthcare Sector

Current Ratio: Good: 1.3-1.8, Excellent: >1.8
Operating Margin: Good: 5-12%, Excellent: >12%
Cash Flow Coverage: Good: 1.5-2.0×, Excellent: >2.0×
Collection Period: Good: 30-45 days, Excellent: <30 days
Return on Assets: Good: 4-8%, Excellent: >8%

Hospitality Sector

Current Ratio: Good: 1.2-1.5, Excellent: >1.5
Net Profit Margin: Good: 8-15%, Excellent: >15%
Return on Assets: Good: 8-15%, Excellent: >15%
Occupancy Rate: Good: 70-80%, Excellent: >80%
Inventory Turnover: Good: 15-25×, Excellent: >25×

Real Estate Sector

Loan-to-Value (LTV): Excellent: <80% (Bank requirement)
Debt Service Coverage: Good: >1.25 (Strong cash flow)
Cap Rate: 4-10% (Market dependent)
Occupancy Rate: Higher is better
Gross Rent Multiplier: Lower often better

Manufacturing Sector

Inventory Turnover: Higher efficiency preferred
Capacity Utilization: Higher operational efficiency
Operating Cycle: Shorter cycles preferred
Revenue per Employee: Higher productivity measure
Fixed Asset Turnover: Sales / Net PPE efficiency

🚀 Startup & High-Growth Company Ratios

Burn Rate

Monthly Burn Rate = Average Monthly Operating Loss

Cash Management:

Excellent: Decreasing trend with revenue growth
Good: Stable with clear milestones
Average: High but with funding secured
Bad: Increasing without revenue growth

Runway (Months)

Runway = Cash Holdings / Monthly Burn Rate

Survival Timeframe:

Excellent: >18 months (Comfortable buffer)
Good: 12-18 months (Adequate planning)
Average: 6-12 months (Funding required)
Bad: <6 months (Immediate funding needed)

Customer Acquisition Cost (CAC)

CAC = Total Sales & Marketing Expense / New Customers

Acquisition Efficiency:

Excellent: CAC < LTV/3 (High efficiency)
Good: CAC < LTV/2 (Sustainable model)
Average: CAC = LTV/2 (Break-even acquisition)
Bad: CAC > LTV/2 (Unsustainable)

Lifetime Value to CAC Ratio

LTV:CAC = Customer Lifetime Value / Customer Acquisition Cost

Unit Economics:

Excellent: >5:1 (Highly profitable customers)
Good: 3:1 to 5:1 (Healthy unit economics)
Average: 2:1 to 3:1 (Acceptable model)
Bad: <2:1 (Unprofitable acquisition)

Monthly Recurring Revenue (MRR)

MRR = Monthly Subscription Revenue from All Customers

Growth Trajectory:

Excellent: >20% month-over-month growth
Good: 10-20% monthly growth
Average: 5-10% monthly growth
Bad: <5% or declining MRR

Rule of 40

Rule of 40 = Revenue Growth Rate + Profit Margin

SaaS Performance Benchmark:

Excellent: >40% (Strong balanced performance)
Good: 30-40% (Healthy SaaS metrics)
Average: 20-30% (Acceptable performance)
Bad: <20% (Growth or profitability issues)

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Industry Sector	ROE Benchmark	D/E Ratio	Current Ratio	Net Margin	P/E Ratio	EBITDA Margin
Technology/IT Services	25-35% (Excellent: >25%)	0.0-0.3 (Excellent: <0.3)	2.0-4.0 (Good: 1.5-3.0)	15-30% (Excellent: >20%)	15-25 (Good range)	20-35%
Pharmaceuticals	15-25% (Good: 15-25%)	0.0-0.5 (Excellent: <0.2)	1.8-3.5 (Good: 1.0-1.5)	15-35% (Excellent: >20%)	15-20 (Fair value)	25-40%
FMCG/Consumer Goods	18-25% (Good: 20-25%)	0.3-0.7 (Good: 1.0-1.5)	1.5-2.5 (Good: 1.5-3.0)	10-22% (Good: 10-20%)	20-25 (Average range)	15-25%
Banking/Financial Services	12-20% (Good: 15-20%)	5.0-15.0* (Sector norm)	1.1-1.2** (Regulatory)	25-50%*** (Operating)	15-20 (Value range)	N/A (NIM: 3-4%)
Manufacturing	10-18% (Good: 12-18%)	0.3-0.8 (Good: 0.2-0.4)	1.2-2.0 (Good: 1.5-2.0)	8-15% (Good: 10-20%)	15-20 (Fair value)	12-20%
Utilities	8-15% (Good: 8-12%)	0.5-2.0 (Good: 0.5-1.0)	1.0-2.5 (Good: 1.5-2.5)	10-20% (Good: 10-15%)	15-25 (Excellent: <20)	15-30%
Transportation	12-18% (Good: 12-18%)	0.8-2.5 (Good: 0.8-1.5)	1.0-1.7 (Good: 1.3-1.7)	5-15% (Good: 5-10%)	15-25 (Market norm)	8-18%
Energy	8-20% (Good: 12-20%)	0.4-1.4 (Good: 0.4-0.8)	1.0-2.0 (Good: 1.5-2.0)	5-25% (Cyclical)	10-20 (Cyclical range)	15-35%
Healthcare	8-15% (Good: 4-8%)	0.2-0.8 (Good: 0.2-0.5)	1.0-1.8 (Good: 1.3-1.8)	5-15% (Good: 5-10%)	15-25 (Growth premium)	10-20%
Hospitality	8-20% (Good: 14-20%)	0.5-2.0 (Good: 0.5-1.0)	0.8-1.5 (Good: 1.2-1.5)	5-20% (Good: 8-15%)	15-25 (Market dependent)	15-25%

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Important Disclaimer

Educational Purpose: This content is for educational purposes only and should not be considered as investment advice.

Risk Warning: All investments carry risk, and past performance does not guarantee future results.

SEBI Compliance: We are not SEBI-registered investment advisors. Please consult with qualified financial professionals before making investment decisions.

Enhanced Notes (2024-25): * Banking D/E reflects deposits as funding. ** Banking current ratio reflects regulatory liquidity. *** Banking margin is operating efficiency. Enhanced with 60+ ratios including startup metrics, comprehensive sector analysis, and detailed Bad/Fair/Good/Excellent benchmarks based on 2024-25 market research.