6 Ratios that Indicate Health of a Company

Return On Capital Employed

It helps to understand how well a company is generating profits from its capital.

Capital employed = Share holder's fund + non-current liability

Ideal Value: 10% (double of interest rate)

Return On Tangible Assets

How efficient a company is in generating profits using its assets.

Ideal Value: 5-20%

Current Ratio

It measures a company's ability to pay short-term obligations or those due within one year.

Ideal Value: 2:1

Quick Ratio

It measures a company's capacity to pay its current liabilities without needing to obtain additional financing.

Ideal Value: 1:1

Quick Assets = Cash + Cash Equivalents + Marketable Securities + Net Accounts Receivable

Return on Equity

It expressed as ratio of net income by the amount of shareholder’s funds.

Ideal Value: 12% & above

Financial Risk

Return on Equity: a measure of the degree to which a company is financing its operations through debt versus wholly owned funds.

Ideal Value: < 2

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