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Financial Ratio Analysis

💼 Business By CampusDown Wiki Editorial Team Last updated
Quick answer: Financial ratio analysis turns balance sheet and income statement figures into ratios to diagnose liquidity, leverage, profitability, efficiency and market value, and is meaningful only against trends and peers.
Contents
  1. 1. Main ratios
  2. 2. DuPont analysis
  3. 3. Method
  4. 4. Limits
  5. 5. References

Main ratios

  • Liquidity: current ratio, quick ratio.
  • Leverage: debt-to-equity, equity ratio, interest coverage (operating income / interest).
  • Profitability: operating margin, ROA, ROE.
  • Activity: total asset, inventory and receivables turnover.
  • Growth: sales and earnings growth.
  • Market: P/E, P/B, dividend yield.

DuPont analysis

ROE = net margin × asset turnover × equity multiplier, showing whether high ROE comes from profitability, efficiency or leverage. DuPont used it from the 1920s.

Method

Compare 3-5 year trends and industry peers, and check operating cash flow for earnings quality. In valuation, ratios pair with discount rates from the CAPM.

Limits

Accounting policy differences, one-off items, window dressing, seasonality and sector features can distort ratios; they raise questions rather than settle them.

References

  1. Penman, S. H. (2013). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill.
  2. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill.
  3. Palepu, K. G., Healy, P. M., & Peek, E. (2013). Business Analysis and Valuation: IFRS Edition (3rd ed.). Cengage.
  4. 한국은행 (2024). 『2023년 기업경영분석』.

Reports and materials that use this theory (Korean)

There are no materials dedicated to this theory yet, but you can search related reports in the CampusDown library (Korean).

Find more reports · Search '재무비율 분석' on CampusDown →
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This article was last updated on October 15, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.