Ratios turn statements into answers. Four families cover most questions:
- Returns: return on equity (ROE) = net income / equity, return on assets (ROA) = net income / assets. Income is earned over a year, so divide by the average of the opening and closing balance:
=C16/AVERAGE(B5:C5).
- Liquidity: current ratio = current assets / current liabilities; the quick ratio leaves out inventory, which may not sell fast.
- Debt: debt / EBITDA and net debt / EBITDA, in turns (3.0x); interest cover = EBIT / interest.
- Efficiency: asset turnover = revenue / average assets.
The DuPont breakdown splits ROE into three parts that multiply back to it: net margin x asset turnover x equity multiplier (average assets / average equity).
When equity is negative, often after years of buybacks, ROE has no meaning: report it as "n/m" (not meaningful) rather than a large negative number.