Dictionary

Key ratios

What are key ratios, really?

Key ratios are core financial metrics used to analyse and assess a company’s financial position and performance over time. They act as indicators that make it possible to compare companies, industries or periods, thereby providing an overview of strengths and weaknesses.

In brief

Get a quick overview.

Key ratios are core financial metrics used to analyse and assess a company’s financial position and performance over time. They act as indicators that make it possible to compare companies, industries or periods, thereby providing an overview of strengths and weaknesses.

1 Profitability ratios - measure how efficiently a company generates profit, e.g. return on assets or return on equity.

2 Key ratios are used by management, investors, lenders and other stakeholders to assess a company’s: earnings.

3 If a company has an equity ratio of 45%, it means that 45% of the assets are financed by equity.

The key angles on the term.

Below you’ll find the core parts of the explanation gathered in the same visual structure as the newer Coherta pages.

Types of ratios

Profitability ratios - measure how efficiently a company generates profit, e.g. return on assets or return on equity.
Liquidity ratios - assess the company’s ability to meet its short-term obligations, e.g. liquidity ratio.
Solvency ratios - show how large a share of the company’s assets is financed with equity, e.g. equity ratio.
Efficiency ratios - analyse how efficiently the company uses its resources, e.g. asset turnover or contribution margin ratio.

Overview

Use

Key ratios are used by management, investors, lenders and other stakeholders to assess a company’s:

Earning capacity
Capital structure
Risk level
Operational efficiency

Example

If a company has an equity ratio of 45%, it means that 45% of the assets are financed by equity. This can be interpreted as a sign of financial resilience. Similarly, a high return on assets can show that the company creates strong value from the invested capital.

However, key ratios only provide the full picture when compared with other metrics, industry benchmarks or previous years’ results.

More details

Key ratios in financial analysis and business operations

Key ratios are widely used in accounting, audit and financial management because they make complex financial data easier to compare and understand. They help assess earning capacity, liquidity, capital structure and efficiency across periods, companies and industries. That’s why key ratios are used both internally by management and externally by banks, investors, creditors and partners.

However, a single key ratio can rarely stand alone. A high profit margin is, for example, positive, but does not necessarily say anything about the company’s liquidity or debt risk. Key ratios therefore deliver the most value when read in context and supplemented with industry insight, trends over time and specific accounting conditions. That’s exactly why key ratios are an important tool in professional financial analysis.

Practical perspective

When key ratios are used correctly, it becomes easier to identify trends, risks and opportunities in the business. They are therefore a standard tool in the annual report, budget follow-up and strategic decision-making.

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