Ratio Analysis That Says Something

A forty ratio template produces a page of numbers and no conclusion. This course starts from the question you are trying to answer, picks the four ratios that speak to it, and reaches a diagnosis you can defend.

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Six things you will be able to do

Go past filling in the template. Learn which four ratios your question needs, and what each one isolates.

01 Start from the questionWhat you are actually trying to establish, written down before any ratio is computed.
02 Know the four familiesProfitability, efficiency, leverage and liquidity, and what each one isolates.
03 Decompose returnsBreak a return on equity into margin, turnover and leverage to find the driver.
04 Pick four and defend themChoose the smallest set that answers the question, and justify each choice.
05 Read them against somethingPeers, history and the business model, because a ratio alone means nothing.
06 Write the diagnosisTwo sentences stating what the four ratios establish, and what they do not.
The outcome

What changes after this course

You stop computing every ratio you know and start choosing the four that matter, then saying what they establish about the business.

Four ratios chosen for a stated question, each one justified

A return decomposed into its drivers rather than reported as one figure

A two sentence diagnosis, with the limits of what it proves stated plainly

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