What are some key ratios that can be derived from a Balance Sheet?

Several key financial ratios can be derived from a company's Balance Sheet, providing valuable insights into its financial health, performance, and efficiency. Here are some key ratios derived from the Balance Sheet:

1. Current Ratio:

   • $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$
   • Measures a company's short-term liquidity and ability to cover its short-term obligations. A ratio above 1 indicates potentially healthy liquidity.

2. Quick Ratio (Acid-Test Ratio):

   • $\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$
   • Similar to the current ratio but excludes inventory, providing a more stringent measure of short-term liquidity.

3. Debt-to-Equity Ratio:

   • $\text{Debt-to-Equity Ratio} = \frac{\text{Total Debt}}{\text{Shareholders' Equity}}$
   • Indicates the proportion of a company's financing that comes from debt as opposed to equity. Higher ratios suggest higher financial leverage and risk.

4. Return on Equity (ROE):

   • $\text{ROE} = \frac{\text{Net Income}}{\text{Average Shareholders' Equity}}$
   • Measures the profitability generated per unit of shareholders' equity. It indicates how well a company is using equity capital to generate profits.

5. Return on Assets (ROA):

   • $\text{ROA} = \frac{\text{Net Income}}{\text{Average Total Assets}}$
   • Evaluates a company's ability to generate profits from its assets. It provides an overall efficiency measure of asset utilization.

6. Gross Margin:

   • $\text{Gross Margin} = \frac{\text{Gross Profit}}{\text{Revenue}}$
   • Represents the percentage of revenue that exceeds the cost of goods sold. It indicates the efficiency of production and pricing strategies.

7. Net Profit Margin:

   • $\text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Revenue}}$
   • Measures the percentage of revenue that represents a company's profit after all expenses. It reflects overall profitability.

8. Inventory Turnover:

   • $\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$
   • Measures how many times a company's inventory is sold and replaced over a period. Higher turnover is generally more favorable.

9. Asset Turnover:

   • $\text{Asset Turnover} = \frac{\text{Revenue}}{\text{Average Total Assets}}$
   • Indicates how efficiently a company uses its assets to generate revenue. Higher turnover ratios suggest better asset utilization.

10. Equity Ratio:

    • $\text{Equity Ratio} = \frac{\text{Shareholders' Equity}}{\text{Total Assets}}$
    • Represents the proportion of total assets financed by shareholders' equity. A higher equity ratio indicates lower financial risk.

11. Working Capital Turnover:

    • $\text{Working Capital Turnover} = \frac{\text{Revenue}}{\text{Average Working Capital}}$
    • Measures how efficiently a company utilizes its working capital to generate sales.

These ratios provide a comprehensive view of a company's financial performance, efficiency, and risk. It's important to note that ratios should be analyzed in the context of industry benchmarks, historical trends, and the overall financial strategy of the company. Additionally, using a combination of ratios provides a more holistic understanding of a company's financial condition.