👉 Quick heuristic across all four:
- Numerator = what you care about (profit, debt, assets, price).
- Denominator = the scale you’re comparing against (sales, equity, liabilities, earnings).
That way, ratios always tell you: “relative to what?”
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Profit Margin
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Debt-to-Equity Ratio
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Current Ratio
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P/E Ratio
Ratio | Plain Meaning | Formula | Numerator (what’s on top) | Denominator (what’s on bottom) |
Profit Margin | How much profit is kept from each $1 of sales | Net Income ÷ Sales | Net Income = leftover after costs, interest, taxes | Sales = total $ brought in |
Debt-to-Equity | How much debt vs. owner funding | Debt ÷ Equity | Debt = borrowed money owed to creditors | Equity = owners’ stake |
Current Ratio | Can I cover near-term bills with near-term assets? | Current Assets ÷ Current Liabilities | Cash, receivables, inventory (convertible in ≤1 year) | Bills, debt, payables due ≤1 year |
P/E Ratio | How much investors pay for $1 of earnings | Price ÷ EPS | Price = market price per share | Earnings per share (profit per share) |
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