Cheat Sheet

Financial Ratios Cheat Sheet

Q: What are the most important financial ratios for stock analysis?

No single ratio tells the whole story, but a practical core set for Indian investors is: P/E and P/B for valuation, ROE and ROCE for profitability and capital efficiency, Debt-to-Equity and Interest Coverage for financial risk, and the Current Ratio for short-term liquidity. Always read ratios together, compare them with the company's own history and its sector peers, and never judge a stock on one number alone.

Q: What is a good ROE and ROCE in India?

As a rule of thumb, a consistent ROE and ROCE above 15% is considered healthy for an Indian company, and above 20% is strong — provided it is achieved without excessive debt. ROCE is often more reliable than ROE for debt-heavy businesses because it accounts for total capital employed, not just equity. Look for ratios that are stable or rising over 5+ years rather than a single good year.

Q: Is a high P/E ratio bad?

Not necessarily. A high P/E can simply reflect strong expected growth — high-quality, fast-growing companies often trade at higher P/Es. It becomes a concern only when the price is not justified by the company's growth and quality. Compare the P/E with the company's own history, its sector, and its growth rate (the PEG ratio helps here). P/E is also meaningless for loss-making companies.

Q: Which ratios matter most for banks and NBFCs?

Banks and NBFCs are analysed differently. Price-to-Book (P/B) matters more than P/E, and you look at asset quality (Gross and Net NPA), Net Interest Margin (NIM), CASA ratio, and Capital Adequacy (CAR) rather than the usual debt ratios — debt is their raw material, so a high Debt-to-Equity is normal and not a red flag the way it is for a manufacturer.

The 25+ ratios that actually matter when you analyse an Indian stock — each with its formula, what it tells you, and a healthy range to look for. Print it, pin it, and use it next time you open a company on Screener or Tickertape.

Open the P/E Calculator →

Healthy range Watch / sector-dependent Context / no fixed range

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Valuation

Are you paying a fair price?

Price to EarningsP/E

Market Price ÷ EPS

How many rupees you pay for ₹1 of annual profit. Higher = market expects more growth (or it's overvalued).

Compare to sector & own history

Price to BookP/B

Market Price ÷ Book Value/share

Price vs net assets. Most useful for banks, NBFCs and asset-heavy firms. Below 1 can be cheap — or distressed.

~1–3 typical; sector-led

PEG RatioPEG

P/E ÷ EPS growth %

P/E adjusted for growth (Peter Lynch). Puts a fast-growing high-P/E stock and a slow cheap one on the same scale.

≈ 1 fair · < 1 attractive

EV / EBITDAEV/EBITDA

Enterprise Value ÷ EBITDA

Debt-neutral valuation, so you can compare companies with different debt levels. Lower = cheaper.

< 10–12 often reasonable

Price to SalesP/S

Market Cap ÷ Annual Sales

For loss-making or early-stage firms where there's no P/E yet. Use within the same industry only.

Industry-relative

Dividend YieldDY

Dividend/share ÷ Market Price

Annual cash return from dividends. Matters for income investors; a very high yield can signal a falling price.

Context-dependent

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Profitability & Returns

Is the business actually good?

Return on EquityROE

Net Profit ÷ Shareholder Equity

Profit generated on owners' money — a Buffett favourite. But high debt can flatter it, so read it with D/E.

> 15% healthy · > 20% strong

Return on Capital EmployedROCE

EBIT ÷ Capital Employed

Return on all capital (equity + debt). Often more reliable than ROE for debt-heavy businesses.

> 15% healthy · > 20% strong

Return on AssetsROA

Net Profit ÷ Total Assets

How efficiently assets produce profit. Useful across asset-heavy sectors; banks run on thin ROA.

> 5% (ex-financials)

Net Profit MarginNPM

Net Profit ÷ Sales

Rupees of profit per ₹100 of sales, after everything. Trend matters more than the absolute level.

Rising trend > high number

Operating MarginOPM / EBIT%

EBIT ÷ Sales

Profitability of the core operations, before interest and tax. Shows pricing power and cost control.

Compare within sector

Earnings Per ShareEPS

Net Profit ÷ No. of Shares

Profit attributable to each share — the engine behind the P/E. Watch for steady multi-year growth.

Track the growth, not the level

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Leverage & Solvency

Can it survive a bad year?

Debt to EquityD/E

Total Debt ÷ Shareholder Equity

How much the company borrows vs owns. High debt magnifies both profits and losses.

< 1 generally safe*

Interest CoverageICR

EBIT ÷ Interest Expense

How many times operating profit covers interest. The single best early warning for debt stress.

> 3 comfortable · < 1.5 risky

Net Debt to EBITDADebt/EBITDA

Net Debt ÷ EBITDA

Years of cash profit it would take to repay debt. Lenders watch this closely.

< 3 manageable

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Liquidity & Efficiency

Day-to-day financial health

Current RatioCR

Current Assets ÷ Current Liabilities

Can short-term assets cover short-term dues? Too low risks a cash crunch; too high may mean idle cash.

~1.5–2 healthy

Quick RatioAcid Test

(Current Assets − Inventory) ÷ CL

Stricter liquidity test that ignores hard-to-sell inventory. Better for inventory-heavy firms.

≥ 1 healthy

Asset TurnoverATR

Sales ÷ Total Assets

Sales generated per rupee of assets. High-turnover, low-margin (retail) vs low-turnover, high-margin (luxury).

Sector-defined

Inventory TurnoverITR

COGS ÷ Average Inventory

How fast stock is sold and replaced. Falling turnover can flag piling-up, unsold goods.

Higher is usually better

Receivable DaysDSO

(Receivables ÷ Sales) × 365

Average days to collect cash from customers. Rising days can mean aggressive sales or weak collection.

Lower & stable is better

Cash Conversion CycleCCC

Inventory + Receivable − Payable days

Days cash is tied up in operations. A negative CCC (e.g. some retailers/FMCG) is a sign of real strength.

Lower / negative is better

The DuPont Breakdown — Why ROE Is High

A high ROE is good — but why it's high matters. DuPont splits ROE into three drivers, so you can tell a genuinely profitable business from one that's just heavily borrowed.

How To Use Ratios Without Getting Fooled

Never judge on one ratio. Read valuation, profitability and debt together — a cheap P/E with collapsing margins isn't a bargain.
Always compare like-with-like. A ratio only means something against the company's own 5-year history and its sector peers.
Profit ≠ cash. Cross-check rising profit with operating cash flow; persistent gaps are a classic warning.
Watch the trend. Steady or improving over 5 years beats one flattering year.
Banks & NBFCs are different. Use P/B, NIM, NPAs and CASA — not D/E, which is naturally high for them.
Debt magnifies everything. A great ROE on heavy debt can flip to ruin in a downturn — check Interest Coverage.

Frequently Asked Questions

What are the most important financial ratios for stock analysis?

No single ratio tells the whole story, but a practical core set is: P/E and P/B for valuation, ROE and ROCE for profitability and capital efficiency, Debt-to-Equity and Interest Coverage for financial risk, and the Current Ratio for short-term liquidity. Always read ratios together, compare with the company's own history and its sector peers, and never judge a stock on one number alone.

What is a good ROE and ROCE in India?

A consistent ROE and ROCE above 15% is considered healthy for an Indian company, and above 20% is strong — provided it's achieved without excessive debt. ROCE is often more reliable than ROE for debt-heavy businesses because it accounts for total capital employed. Look for ratios that are stable or rising over 5+ years rather than one good year.

Is a high P/E ratio bad?

Not necessarily. A high P/E can reflect strong expected growth — high-quality, fast-growing companies often trade at higher P/Es. It's a concern only when the price isn't justified by growth and quality. Compare the P/E with the company's own history, its sector, and its growth rate (the PEG ratio helps). P/E is also meaningless for loss-making companies.

Which ratios matter most for banks and NBFCs?

Banks and NBFCs are analysed differently. Price-to-Book matters more than P/E, and you look at asset quality (Gross and Net NPA), Net Interest Margin (NIM), CASA ratio and Capital Adequacy (CAR) rather than the usual debt ratios — debt is their raw material, so a high Debt-to-Equity is normal, not a red flag.

Put These Ratios To Work

Learn how to read a company end-to-end, or jump straight into the calculators.

Fundamental Analysis Guide → P/E Calculator Stock Valuation Guide

Educational reference only — not investment advice or a recommendation to buy or sell any security. Ideal ranges are general rules of thumb that vary by sector and cycle; always do your own research or consult a SEBI-registered investment adviser.

* Debt-to-Equity norms vary widely by industry — capital-intensive sectors (infrastructure, telecom) and all financials naturally run higher.